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FINANCING THE LOW-CARBON ECONOMYInstruments, Barriers and Recommendations
A compendium of innovative finance instruments prepared by Swiss Sustainable Finance in cooperation with its network
Cover :
EPFL QUARTIER NORD, THE SWISSTECHCONVENTION CENTER, ECUBLENS, SWITZERLAND, 2008–2014
Situated at the northern entrance to the École polytech-nique fédérale de Lausanne (EPFL) campus, the Swiss-Tech Convention Center is a landmark in the Lake Geneva area. With its metallic shell, diamond-shaped tiles and in particular its west façade with 300 square meters of dye-sensitized solar cells, the building is well known for its futuristic technology. The revolutionary solar cells, developed by the Swiss chemist Michael Grätzerl of the EPFL, generate 2000 kilowatt hours of clean electricity annually. The cover image, “ Le Semainier et son double ”, was cap-tured by artists Catherine Bolle and Daniel Schlaepfer using the beautiful array of colours made possible by the original façade. Innovative solar technologies are only one of many solutions needed to reduce greenhouse gas emissions and mitigate climate change. Besides an expansion of clean energy generation, the shift to a low-carbon economy also requires solutions for more energy efficiency, sustainable infrastructure and ulti-mately more sustainable solutions in all sectors of the economy. This image of solar cells generating intervals of coloured rays of light, reflects the multitude of tools and actors needed to achieve a low-carbon economy and society, and ultimately, a bright future.
SWISS SUSTAINABLE FINANCEFinancing the Low-Carbon Economy 1
With the Paris Agreement aiming to limit global warming to well
below 2 degrees Celsius, and preferably to 1.5 degrees, the interna-
tional community has set a clear goal : to avoid a global climate cri-
sis and significantly reduce the risks and impacts of climate change.
A growing number of countries have translated this overarching
target into the concrete objective of bringing down their emissions
to net zero by mid-century. It was the European Union who first
announced such a 2050 goal, followed by Switzerland, which aims
to halve its emissions by 2030 and achieve net zero by 2050 as well.
More recently, China, the world’s largest emitter of CO2, declared
its ambition to achieve net zero emissions for the whole country
by 2060.
Such emission reductions obviously require massive invest-
ments in low-carbon solutions, both public and private. The Inter-
governmental Panel on Climate Change (IPCC) estimates in a recent
report 1 that average annual investments of USD 3.5 trillion must be
mobilised between 2016 and 2050 to transform the world’s energy
systems and meet the 1.5 degree target. This large figure does not
even include the investments needed in other sectors such as
agriculture or real estate.
Given the financial sector’s intermediary role and its ability to
allocate capital and support the real economy, financial players are
key for transforming our economies and societies into a system that
reduces its greenhouse gas emissions and respects other planetary
boundaries as well. Innovative lending, investing and insurance
solutions can support companies in adopting and developing
low-carbon solutions. Financial flows channelled through such
instruments have the capacity to accelerate the uptake of new tech-
nologies and steer investments into more efficient solutions. Hav-
ing said that, financial players can only exploit this potential if the
right frameworks for all relevant emitters in the real economy are
put into place. This publication therefore also sheds light on Swiss
environmental legislation and identifies approaches that have been
successful in reaching environmental policy goals. The new CO2 law
signed off by both chambers of the Swiss parliament in autumn
2020 will be a crucial next step on the path to improved frameworks,
once put into force, although more action needs to follow suit.
The broad compendium of financial tools and instruments
within this report demonstrates that the finance industry already
has a long track-record in developing climate finance solutions. Par-
ticularly in secondary markets for listed equity investments, there
are a number of mature instruments through which investors can
address climate change. Although such investments are important
pieces of the puzzle, direct finance for new projects and companies
can have an even stronger effect. Many of the solutions covered in
this report therefore refer to primary investments and ways to raise
new funding for promising technology. SSF hopes to encourage a
variety of players to make use of and further develop these tools. Yet
only if we join forces and apply them at scale, both within Switzer-
land and beyond, will we generate the volumes needed to enable the
required change. USD 3.5 trillion of investments– every year! We
must get started today to further promote, develop and utilise these
and many other innovative financing solutions.
PREFACE
ZURICH, NOVEMBER 2020
Jean-Daniel Gerber Sabine DöbeliPresident SSF CEO SSF
1 Intergovernmental Panel on Climate Change (IPCC) (2019) : IPCC Special Report : Global Warming of 1.5 º C.
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 2
CONTENTS
Preface Executive Summary Introduction Thematic Equity Funds : Capital Allocation and Engagement as Drivers for a Low-Carbon EconomyThematic Funds for Sustainable Mobility : Are Electric Vehicles the Silver Bullet ?Financing Alternative Mobility Concepts with Public Equity : Electric Buses Replace Diesel Climate Indices for Listed Equity : Comparing Different Methods to Minimise Climate Risk Exposure Instruments for Non-Thematic Listed Equity : Decarbonisation through Climate Engagement Green Bonds : Channelling Proceeds into Green SolutionsSustainability Bonds : Financing Environmental and Social Outcomes Sustainable Real Estate : Green Buildings from an Investor PerspectiveGreen Real Estate Funds : Providing a Future-Fit Portfolio while Reducing Carbon Emissions Energy Efficient Mortgages : Supporting Energy Efficiency and Sustainability in Real Estate Direct Investments in Non-Listed Companies and Projects : The Entrepreneurial Approach to Supporting the Low-Carbon EconomyFinancing of Infrastructure Investments : The Example of Heizwerk Gotthard AG Venture Capital Investments : The Role of Early-Stage Capital for Low-Carbon SolutionsVirtual Power Plants : Delivering Flexible Renewable Energy to the Grid
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SWISS SUSTAINABLE FINANCE 3Contents
Insurance Solutions : Energy Savings Insurance Removing Barriers to Energy Efficiency Projects Energy Performance Contracting : Scaling Energy Efficiency Investments through Tested Financing Models Community Finance : Renewable Energy CooperativesA Promising Investment Model for a City to Foster Solar Power : The Experience of Lausanne City Council Fundamentals of Carbon Credit Markets : Opportunities, Barriers and EnablersChallenges and Opportunities for Timber Buildings in the Swiss Real Estate Market : The Role of Carbon Credits Blended Finance : Building on Partnerships for Effective Climate Finance Green State Investment Bank : An Effective Climate Policy Tool Transformation Capital : A Systemic Investment Logic Swiss Environmental Legislation : A Brief History and Analysis of Effectiveness Conclusion : Identifying and Tackling Barriers for Low-Carbon Financing Instruments AppendixList of AbbreviationsAuthorsImprint
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SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 4
EXECUTIVE SUMMARY
This report showcases a wide array of finance instruments that
help channel funding into the solutions necessary for the transi-
tion to a low-carbon economy. The publication is the result of a
joint effort of Swiss Sustainable Finance (SSF) and its broad and
diverse network. Accompanied and guided by a high-level Steering
Committee throughout the process, SSF has gathered expertise
from practitioners within the Swiss sustainable finance landscape
to produce a report with concrete examples of how the financial
sector can support the decarbonisation of our society in a variety
of ways.
In the introduction (Chapter 1), we provide an overview of the
14 instruments and two additional levers covered in this report,
classifying and mapping them within the financial system. The fol-
lowing chapters (Chapters 2–17) then provide detailed insights into
the different instruments, describing their underlying mechanisms
and applicability, as well as related barriers and opportunities. The
instruments range from well-proven approaches for traditional
asset classes to innovative structures that are currently in develop-
ment. The report is complemented by eight specific case studies
from the Swiss market. Although the selection of instruments is by
no means exhaustive, our report clearly illustrates how diverse the
finance toolbox to support the transition to a low-carbon economy
has become.
In the conclusion (Chapter 18), we look at the various barriers
that need to be addressed in order for market players to scale these
instruments and mobilise the full potential of sustainable finance
for a low-carbon economy. In addition, the report sheds light on the
framework conditions and constraints market players face when
deploying low-carbon finance instruments.
The following pages summarise the key take-aways from the
16 content chapters and 8 case studies. SSF is confident that further
innovative finance solutions will be developed over the next few
years. However, this publication shows that there is already a broad
set of tools supporting a low-carbon economy. It will be crucial to
incentivise both the real economy and the financial industry to work
together towards the same goal. With the right balance, all actors will
be better placed to embark on an ambitious, science-based low-
carbon path and support each other in achieving global climate goals.
SWISS SUSTAINABLE FINANCE 5Executive Summary
CHAPTER 2
Thematic Equity Funds : Capital Allocation and Engagement as Drivers for a Low-Carbon Economy — Thematic investment strategies with a focus on the energy
transition, targeting areas such as renewable energy or energy
efficiency, have seen growing interest in recent years.
— Such strategies can be considered a supplement to private-mar-
ket impact investing, as they build on a clear intentionality.
Participation in IPOs or seasoned new issues of companies that
often have a small and medium capitalisation can contribute
to reducing their cost of capital and provide a source of R&D
investments that helps drive innovation.
CASE STUDY 2.1
Thematic Funds for Sustainable Mobility : Are Electric Vehicles the Silver Bullet ? — Electric vehicles and technological advances are crucial for
reaching net zero CO2 emissions by 2050, but societal behaviour
is equally important. Thematic funds investing can play a key
role in shifting the necessary capital.
CASE STUDY 2.2
Financing Alternative Mobility Concepts with Public Equity : Electric Buses Replace Diesel — Public equity markets are increasingly providing expansion
capital to finance the transition towards a carbon-neutral econ-
omy, for example within the commercial transport industry.
CHAPTER 3
Climate Indices for Listed Equity : Comparing Different Methods to Minimise Climate Risk Exposure — Based on consistent, reliable and independent ESG-related
data, an index-based investment approach can be developed
that manages to significantly reduce the CO2 emission exposure
of a portfolio, while not compromising the classical investment
rationale.
— Passive benchmark-linked investment solutions like these will
be key for re-channelling major asset flows towards greener
investment, thus encouraging the paradigm change towards a
low-carbon economy.
CHAPTER 4
Instruments for Non-Thematic Listed Equity : Decarbonisation through Climate Engagement — Climate engagement is a valuable approach to facilitate large-
scale and system-wide decarbonisation in the real economy,
by conducting an active dialogue with investee companies.
— International collaborative engagement initiatives allow
investors to pool assets and strengthen their negotiating
power to incentivise the world’s biggest carbon emitters to
adopt strategies aligned with the low-carbon economy.
CHAPTER 5
Green Bonds : Channelling Proceeds into Green Solutions — Green bonds are a fixed-income security designed to finance
new and existing projects that deliver positive environmental
and/or climate benefits.
— With a strong increase in green bond issuance over the past
few years, issuers are not only signalling their awareness of
environmental risks, but also their willingness to exploit
attractive low-carbon opportunities.
— In order to ensure credibility and provide transparency on the use
of proceeds, second-party opinions and voluntary standards
help to structure the market.
CASE STUDY 5.1
Sustainability Bonds : Financing Environmental and Social Outcomes — As opposed to green bonds, sustainability bonds not only direct
investments into environmental outcomes, but also address
social issues, as the example of the Raiffeisen Switzerland
sustainability bond shows.
CHAPTER 6
Sustainable Real Estate : Green Buildings from an Investor Perspective — Empirical evidence shows that green buildings can generate
premiums, hence investors should analyse green building
projects from a value perspective and not only from a cost
perspective.
— Greater transparency in labelling methodology would improve
comparability and encourage investors to commit to sustainable
real estate, as well as help the industry benefit from existing
standards.
CASE STUDY 6.1
Green Real Estate Funds : Providing a Future-Fit Portfolio while Reducing Carbon Emissions — This case study highlights the key elements of a sustainable
real estate investment strategy, which includes an in-depth
energy analysis of real estate properties, provides a multi-year
building upgrade programme and explores the potential of
each property within a portfolio to lower its carbon footprint,
while increasing rental levels and the value of real estate assets.
CHAPTER 7
Energy Efficient Mortgages : Supporting Energy Efficiency and Sustainability in Real Estate — Due to the enormous scope for Switzerland to achieve energy
savings through upgrading existing properties, the market for
services supporting property modernisation has great potential,
while current instruments, such as interest-rate reductions on
mortgages (e.g. “ eco ” mortgages) only have limited effects.
— The approach of a long-term use and renewal strategy for prop-
erties is one way of increasing the renovation rate. This allows
for optimal financial planning and appropriate actions to be
taken.
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 6
CHAPTER 8
Direct Investments in Non-Listed Companies and Projects : The Entrepreneurial Approach to Supporting the Low-Carbon Economy — Private equity investment managers typically have a strong
influence over how assets are developed and managed.
— This is particularly true for direct investments, where an active
ownership model provides opportunities to work closely with
portfolio assets to implement low-carbon initiatives for clean
energy and energy efficiency.
CASE STUDY 8.1
Financing of Infrastructure Investments : The Example of Heizwerk Gotthard AG — Clean energy infrastructure funds can make a valuable contri-
bution to sustainable energy production in Switzerland by pro-
viding long-term equity capital to private and public companies.
— Companies use this capital for the construction, operation or
renovation of sustainable infrastructure facilities and energy
utilities.
CHAPTER 9
Venture Capital Investments : The Role of Early-Stage Capital for Low-Carbon Solutions — Start-ups play a vital role in developing and testing innovative
solutions for reducing the resource- and carbon-intensity of
today’s economy, and early-stage capital is an important cata-
lyst for such businesses.
— As direct investments in early-stage ventures are linked to high
risks, bundling such companies into funds makes this asset
class investable for institutional asset owners and can channel
further capital into low-carbon start-ups.
CASE STUDY 9.1
Virtual Power Plants : Delivering Flexible Renewable Energy to the Grid — The significant increase of renewable energy sources in the
global energy mix, coupled with information technologies, is
disrupting the energy value chain and bringing about invest-
ment opportunities in clean-tech start-ups and smart utility
business models.
— One such model is a Virtual Power Plant (VPP), which harnesses
the power of information technology to virtually aggregate a
diverse set of distributed renewable energy assets into a platform,
operating them as a unified resource.
CHAPTER 10
Insurance Solutions : Energy Savings Insurance Removing Barriers to Energy Efficiency Projects — High upfront costs, perceived risks and lack of access to finance
often hinder investments in energy efficiency, especially
among SMEs.
— In order to increase investments in energy efficiency, the
Energy Savings Insurance (ESI) model has been developed to
reduce the risks, by offering a policy to cover clients in case the
energy savings guaranteed by the technology provider are not
delivered.
— The model has been developed in Latin America and is currently
under implementation in Europe.
CHAPTER 11
Energy Performance Contracting : Scaling Energy Efficiency Investments through Tested Financing Models — Energy efficiency investments face unique barriers, such as
high up-front costs, long pay-back periods and small scale of
individual investments, all of which contribute to the invest-
ment gap needed to reach the climate goals set in the Paris
Agreement.
— Energy Performance Contracting (EPC) carries the potential to
address some of these financing barriers by aggregating invest-
ments into portfolios to achieve the required scale.
— Receivables from EPCs are sometimes sold to institutional
investors who appreciate their alignment with their long-term
liabilities.
CHAPTER 12
Community Finance : Renewable Energy Cooperatives — Community finance can provide funding for renewable energy
projects and allow small-scale retail investors to invest in
renewable energy.
— The number of such projects is expected to further increase
while prices of renewables are expected to further decline,
which will support the creation of a profitable investment envi-
ronment.
— Besides financial benefits, community energy projects increase
electricity-customer engagement with renewables, customer
satisfaction and loyalty, and community well-being.
CASE STUDY 12.1
A Promising Investment Model for a City to Foster Solar Power : The Experience of Lausanne City Council — This case study shows how the city of Lausanne set up a company
to successfully implement and invest in rent-a-roof models to
develop solar photovoltaics.
— This leasing model can deliver attractive returns for the investor
company and allows building owners to install PV and benefit
from renewable energy without high upfront costs.
SWISS SUSTAINABLE FINANCE 7Executive Summary
CHAPTER 13
Fundamentals of Carbon Credit Markets : Opportunities, Barriers and Enablers — With companies stepping up their efforts to mitigate their carbon-
intensive activities and set science-based emission reduction
goals, global carbon markets are likely to provide a natural bed-
rock for policy development and financial innovation, espe-
cially in light of the recovery from the COVID-19 pandemic.
— As a result, financial institutions are increasingly applying car-
bon pricing scenarios in their disclosure of climate-related
risks and opportunities in a variety of sectors, from banking to
insurance underwriting and asset management.
CASE STUDY 13.1
Challenges and Opportunities for Timber Buildings in the Swiss Real Estate Market : The Role of Carbon Credits — Timber buildings can potentially generate additional cashflows
from carbon credits, which can increase the attractiveness of
timber real estate investments compared to traditional building
materials, such as concrete and steel.
— This attractiveness is however highly dependent on the assumed
carbon credit price and developments on the regulatory level.
CHAPTER 14
Blended Finance : Building on Partnerships for Effective Climate Finance — Blended finance is the concept of using capital from public or
philanthropic sources to de-risk transactions, which helps
mobilise private capital into investments aiming to achieve
targeted impacts.
— Traditionally employed in development finance, blended
finance has proven to work well in climate finance, especially
for renewable energy and climate mitigation projects, due to its
robust track record, linked project cash flows and government
support.
CHAPTER 15
Green State Investment Bank : An Effective Climate Policy Tool — Research has shown that public banks, such as state investment
banks (SIB) with a clear mandate, can be an effective tool to
mobilise private investment.
— SIBs typically have three key roles : de-risking projects or provid-
ing direct investment capital, contributing crucial knowledge
through specialised risk assessment and due diligence teams,
and providing signals to the market.
— There are multiple examples of SIBs with a green mandate
across the world. Switzerland could build on these experiences
and leverage domestic finance skill sets to develop a Swiss SIB
model for climate investments.
CHAPTER 16
Transformation Capital : A Systemic Investment Logic — Climate change is a systemic problem. To address it, the IPCC
calls for the transformation of the socio-technical systems that
constitute modern civilisation.
— The axioms, paradigms and structures of today’s capital mar-
kets mean that traditional investment approaches are ill-suited
to drive this type of change.
— This chapter describes a systemic investment logic at the inter-
section of systems thinking and finance practice. Its hallmarks
include new notions of value, a strategic blending paradigm,
the deliberate engagement of tipping points and alignment
with levers of change controlled by other actors in society,
such as policymakers and philanthropists.
CHAPTER 17
Swiss Environmental Legislation : A Brief History and Analysis of Effectiveness — Building on the polluter pays principle (PPP), Switzerland has
in the past introduced a number of legislative measures that
use market signals to achieve the desired environmental out-
comes. However, the implementation of effective environ-
mental market-based instruments continues to be challenging
and new tax incentives often fail to obtain political majorities.
— Substantial improvements are expected with the revision of
the Swiss CO2 Act, which aims to halve GHG emissions by 2030
compared to 1990 levels. Nevertheless, in order to achieve the
Swiss net-zero goal by 2050 further legislative action will still
be necessary.
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 8
1 INTRODUCTION
Since the phrase was coined in 2003 in a white paper for the Brit-
ish government 1, the idea of a “ low-carbon economy ” – and how
to achieve one – has been receiving more and more attention,
both in business and politics. Today, the effects of human activity
on climate change are well-proven and a global framework to
limit the most severe consequences is in place, making the need
to transform our economy into a system that is aligned with a
sustainable and prosperous future for humanity and the planet
more pressing than ever. This publication therefore comes at an
opportune time. With the aim of accelerating the required trans-
formation, it outlines finance solutions that can help us reach a
low-carbon economy and identifies barriers we need to overcome
to get there.
Having signed the Paris Agreement in 2015, Switzerland,
together with a total of 189 other countries, committed to play its
part in preventing global temperature increases of more than 2
degrees Celsius above pre-industrial levels. To reach this goal,
efforts must be made to foster low-carbon technology through the
right political frameworks for all sectors, enhance capacity-build-
ing on all levels and – last but not least – steer financial flows into
segments of the economy that are part of the solution. This transi-
tion obviously presents great challenges, given the significant
amount of public and private capital required to transform a global
economy still very dependent on fossil fuels.
In an attempt to spur change in the real economy, financial markets
are increasingly recognised as an important partner for business
and governments in Switzerland and around the world. The diverse
array of financial players across the entire investment chain and
hence all financial flows, will have to mobilise the tools at their
disposal. Table 1 provides an overview of all financial instruments
covered in this report and classifies them by the type of financial
activity, involved players and maturity within the Swiss market. In
Figure 1, these instruments are mapped within the financial system.
In the process of redirecting financial flows, the responsibility not
only lies with banks and asset managers, but also investors, service
providers, governments and corporations in the real economy.
Many of these actors have already taken steps to support the transi-
tion, but much more is still needed. Connecting the right people,
capital and ideas to scale up solutions will be imperative for moving
forward at the required pace.
In particular, more and more investors are looking for ways in
which they can contribute to and invest in low-carbon solutions,
not least because such low-carbon investments offer attractive
investment opportunities with competitive risk-return profiles. So
far the discussion has mainly revolved around financial flows
into liquid investments traded on secondary markets. However,
financial flows go well beyond public-market instruments. They
encompass private-market investments, credits, corporate finance,
SWISS SUSTAINABLE FINANCE 9Introduction
Table 1 :OVERVIEW ON FINANCING INSTRUMENTS CATEGORISATION BY FINANCIAL ACTIVITY, RELEVANCE FOR DIFFERENT PLAYERS AND MATURITY IN SWISS MARKET
CHAPTER INSTRUMENT/STRUCTURE FINANCIAL ACTIVITY Maturity of instrument in Swiss market *
INVOLVED PLAYERS
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
THEMATIC EQUITY FUNDS
NON-THEMATIC LISTED EQUITY AND BOND INDICES
ENGAGEMENT FOR NON-THEMATIC LISTED EQUITIES AND BONDS
GREEN BONDS
SUSTAINABLE REAL ESTATE INVESTMENTS
ENERGY EFFICIENCY MORTGAGES
DIRECT INVESTMENTS IN NON-LISTED COMPANIES AND PROJECTS
VENTURE CAPITAL INVESTMENTS
INSURANCES FOR ENERGY EFFICIENCY AND RENEWABLE ENERGY
ENERGY PERFORMANCE CONTRACTING (EPC)
COMMUNITY FINANCE: RENEWABLE ENERGY COOPERATIVES
CARBON CREDIT MARKETS
BLENDED FINANCE
GREEN STATE INVESTMENT BANK
TRANSFORMATION CAPITAL
ENVIRONMENTAL POLICY
Investment
Investment
Investment
Capital markets/Investment
Investment
Lending
Investment
Investment
Insurance
Other instrument/ structure
Other instrument/ structure
Other instrument/ structure
Investment
Other instrument/ structure
Other instrument/ structure
None
N.A
N.A
Supply : Asset managersDemand : Institutional and private investors
Supply : Index providers, stock exchanges, asset managersDemand : Institutional and private investors
Supply : Proxy and engagement service providers, asset managersDemand : Asset and wealth managers and Institutional investors
Supply : Investment banks and issuers (corporates, sovereigns)Demand : Institutional and private investors
Supply : Asset managers Demand : Institutional and private investors
Supply : BanksDemand : Private clients
Supply : Asset managersDemand : Institutional investors
Supply : Asset managersDemand : Institutional investors
Supply : Insurance companiesDemand : Corporates (SMEs)
Supply : Corporates (ESCOs)Demand : Corporates
Supply : CooperativeDemand : Retail energy clients
Supply : Government and stock exchanges Demand : Corporates
Supply : Asset managers, multilateral development banks, corporates, donors, NGOsDemand : Institutional and private investors
Supply : GovernmentDemand : Corporates
All financial players
Government and legislator
* Existing level of expertise and uptake in market on a scale of 1 – 3. 1 : low maturity 2 : medium maturity 3 : high maturity
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 10
Pensionfunds
Unlisted companies
Listed companies
Government Legislator
Foundations
Real estate & infrastructure
Privateclients
Cooperatives
Insurancecompanies
Private consumers
Active fundsPassive funds
(index tracking)
Apply a systemic investment logic
Provide climate indices
ASSET OWNERS
BANKS
Investmentbanks
Commercialbanks
16
3
54
14
8 9
1211
1715
13
107
Underwritebonds & shares
Engage and influence
Provide blended finance solutions
Sell shares & bonds
Mandate
Consult and engage
Provide private equity / debt
Sell renewable energyFinance energy savings
Define legislative frameworkProvide capital and de-risk
Buy and sell CO₂ emission allowances
Provide insurance
Delegate assets
Buy shares & bonds
Engage and influence
Provide framework for carbon trading
Provide technical assistance and de-risk
Lend
Stock Exchange
Index providers
Proxy &engagement
services
Figure 1 :MAPPING OF INSTRUMENTS WITHIN THE FINANCIAL SYSTEM
Source : SSF
ASSET MANAGERS / WEALTH MANAGERS
Provide thematic funds
2
SERVICE PROVIDERS & SUPPORTING FUNCTIONS
REAL ECONOMY
6
SWISS SUSTAINABLE FINANCE 11Introduction
1 UK Government (2003). Our energy future – creating a low carbon economy. Available at : https://www.gov.uk/government/publications/our-energy-fu-ture-creating-a-low-carbon-economy
insurance solutions and many other financial services. A concise
overview of such instruments and an interpretation of their mech-
anisms and areas of application is missing. This report attempts to
fill this gap by illustrating a multitude of existing innovative finan-
cial instruments that can provide the private funding necessary for
the low-carbon transition.
Within the report we aim to :
— Describe established and innovative finance instruments and
their role in achieving a low-carbon economy ;
— Illustrate best practice through case studies ;
— Identify barriers and make recommendations to foster the
instruments illustrated in this report ;
— Highlight how political frameworks can support the necessary
change.
The following chapters were written by authors from the SSF net-
work and beyond, and outline 14 different financial instruments
and two additional levers for a low-carbon economy. The chapters
draw on the rich experience of Swiss financial players, but the appli-
cation and scope of the financial instruments and structures
described is global, reflecting the nature of today’s financial flows.
While investment instruments in secondary markets have already
reached a high level of maturity, other instruments providing
finance for new projects and companies are often less established.
Yet, they can have a more direct effect on the decarbonisation of the
economy and our society, which is why this report aims to raise the
awareness about such promising solutions. Throughout the report,
there are also 8 case studies that complement specific chapters and
provide additional insights into how low-carbon finance strategies
are implemented by various players. We further look at the role of
Swiss environmental and financial policy instruments, and con-
clude with a section on barriers and recommendations to highlight
where action can be taken to aid further investments in low-carbon
solutions.
In this publication, finance professionals will find a compen-
dium of well-proven tools to support a low-carbon economy. How-
ever, it is also evident that not all approaches are equally accessible,
nor are they working at the required scale. In addition, private
finance cannot act alone. Therefore, this publication also calls for
politicians and government representatives to create the frame-
works in which sustainable finance can thrive. We are confident
that the content presented is useful for different players aiming
to contribute to further translating financial instruments into a
powerful solution supporting a low-carbon world.
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 12
Thematic investing in environmental strategiesIn the set of instruments to finance the transition to a low-carbon
economy, thematic equity funds are one of the most accessible vehi-
cles for investors. Thematic investment strategies with a focus on
the energy transition, targeting areas such as renewable energy or
energy efficiency, have seen growing interest in recent years. We
define thematic investing as an approach that a) focuses on pockets
of the global economy underpinned by structural growth over the
long term, b) prefers companies that exhibit a high degree of spe-
cialisation in the targeted area, c) practises an unconstrained invest-
ment style without a link to traditional benchmarks. Because of the
focus on companies whose goods and services provide solutions to
specific challenges and needs, the thematic approach is perceived
as very tangible by investors and can be viewed as the closest substi-
tute to private-market impact investments when it comes to provid-
ing funds for low-carbon economy solutions, while remaining
within listed markets.
Opportunity set is broadeningWhen thematic investment funds related to the energy transition
emerged over a decade ago, they focused mostly on renewable
energy. This fledgling sector was fashionable at the time but not
competitive with more traditional energy sources, and therefore
relied heavily on often unreliable government subsidies, which led
to boom and bust cycles. Times have changed in very significant
ways. First, the cost of renewables has come down dramatically,
making them the most cost-effective energy source for new energy
capacity in many parts of the world. Second, the investment uni-
verse has broadened considerably beyond renewables, with areas
such as e-mobility, smart cities, building automation, energy effi-
ciency, autonomous cars, electrification and storage now all an inte-
gral part of the energy transition.
The case for investing in the energy transition is now much
more attractive to investors. The innovation-driven decline in the
costs of solar and wind power, as well as energy storage devices, has
led to less reliance on government subsidies, which reduces the pol-
icy uncertainty that has weighed on the sector historically. It has
also contributed to a shift towards the electrification of motor vehi-
cles, especially passenger cars. This trend has been strengthened by
increasing concerns around climate change and health, which have
resulted in a favourable policy environment culminating in the
global Paris Agreement on Climate Change. The growing opportu-
nity set includes the following areas :
— Investing in renewables through listed equity has become
mainstream. In particular, it is now mostly regulated utilities
that are leading the energy transition and they offer high trans-
parency on revenues and earnings. What used to be the highly
2 THEMATIC EQUITY FUNDS Capital Allocation and Engagement as Drivers for a Low-Carbon Economy
Thematic investment strategies with a focus on the energy transition, targeting areas such as renewable energy or energy efficiency, have seen growing interest in recent years.
Such strategies can be considered a supplement to private-market impact investing, as they build on a clear intentionality. Participation in IPOs or seasoned new issues of companies that often have a small and medium capitalisation can contribute to reducing their cost of capital and provide a source of R&D investments that helps drive innovation.
CHRISTIAN ROESSINGSenior Investment Manager, Pictet Asset Management
DR STEPHEN FREEDMANSenior Product Specialist, Pictet Asset Management
SWISS SUSTAINABLE FINANCE 13Thematic Equity Funds
cyclical component of the portfolio is now a much more defen-
sive, albeit high-growth segment with often predictable dou-
ble-digit total shareholder returns.
— Energy efficiency investments are not only a cost-efficient way
to reduce emissions but also a very pressing necessity, since
70 % of energy is lost between power generation and the
moment it is converted into useful power such as motion, light,
or heat at the final point of consumption.1 Efficiency solutions
provide a wide variety of investment opportunities from build-
ing efficiency to e-mobility or efficient manufacturing.
— A somewhat overlooked but critical segment is the one of ena-
bling technologies, such as power semiconductors, energy stor-
age and smart grids, that is key to making the energy transition
happen. Integrating intermittent renewable energy at scale into
the power system will require improving the power grid, in par-
ticular the greater adoption of hgh-voltage direct current
(HVDC) for long-distance power transmission. This will boost
demand for semiconductors, the critical hardware components
indispensable for running the electric grid. Semiconductors
convert power between different alternating current (AC) and
direct current (DC) and at different frequencies, which helps
minimise power loss and stabilise electricity flow.
— In transportation, regulation is playing an important role for
smart mobility developments, as manufacturers improve the
efficiency of their vehicles in response to increasingly strin-
gent emission and fuel economy standards. Targets for increas-
ing the proportion of electric cars in cities – supported by
innovation to increase the capacity of batteries and reduce
their prices – are expected to make electric vehicles overall
cheaper than conventional fuel vehicles by 2025. Demand for
electric cars is expected to reach 22 per cent of new sales by
2030.2 An attractive way to invest in smart mobility is through
suppliers of the parts and components which most carmakers
will rely on. The share of a vehicle’s content supplied by energy-
efficient component manufacturers is expected to rise by
seven to nine times versus today’s share as electrification
develops, while the content in enabling technologies such as
semiconductors needed to operate electric and autonomous
vehicles should grow by a similar proportion.
— Tighter building codes are also driving strong demand for high
energy performance homes. Effective insulation of walls and
roofs, more efficient appliances and heating, ventilation and
air conditioning (HVAC) systems are all seeing growth well
beyond the baseline for the construction market.
— Factories are also undergoing a significant change towards
greater resource and energy efficiency. Technological innova-
tion in recent years is leading to another industrial revolution
centred around industrial software, sensors and artificial
Figure 2 :ILLUSTRATIVE EVOLUTION OF A CLEAN ENERGY PORTFOLIO COMPOSITION
Cash Green buildings Efficient manufacturing
Smart mobility Enabling technologies Low-carbon infratructure
Renewable energy
100 %
90 %
80 %
70 %
60 %
50 %
40 %
30 %
20 %
10 %
0 %201920172013 2015201120092007
Source : Pictet Asset Management
Percentage of assets
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 14
intelligence. For example, highly sophisticated simulation
software can be used to optimise the design, composition,
shape and production methods for new products, which spares
companies from going through multiple iterations and proto-
types. In addition, replacing conventional industrial motors
by more energy-efficient systems such as variable-speed
motors can reduce electricity consumption by about 20–30 %
on average, with the potential to reduce total global electricity
demand by about 10 %.
Given this broadening of the opportunity set, Pictet’s flagship clean
energy strategy, as an example, invests in listed companies where
more than one third of sales, EBITDA3 or enterprise value comes
from energy-transition-related activities – sectors such as renewa-
bles, smart mobility, efficient manufacturing, green buildings and
enabling technologies (see Figure 2).
Impact of thematic equitiesWith the growth in impact investing – i.e. investment seeking to
generate a positive environmental and/or social impact as well as a
financial return – in private markets (such as private equity and pri-
vate debt) and the desire to apply similar principles to listed mar-
kets, thematic equities are increasingly being viewed as a potential
substitute, or at least supplement. The question arises as to what
the actual impact of energy-transition-themed investments is.
One commonly used criterion for impact is the notion of
intentionality, i.e. whether driving positive change is an objective
of an investment strategy. For thematic funds with a clear mandate
to fund companies contributing to the energy transition, that is not
difficult to establish.
A second common criterion is the causality between funds
invested and resulting positive outcomes. While such a connection
may generally be more difficult to establish in listed markets than
for impact investments in private markets, the case is easier to
make for thematic investments versus broad equity investments.
Because of the intention to target thematically pure companies, the-
matic investments often focus to a greater extent on stocks with a
small or medium capitalisation (i.e. below USD 10 billion). The par-
ticipation in IPOs or seasoned new issues is a way to directly fund
such companies. This can both contribute to reducing their cost of
capital and provide, for instance, a source of R&D investments
within the company that drives innovation. Even the active partici-
pation in secondary market trading in smaller names contributes to
lower cost of capital by ensuring that growing privately-held com-
panies have easier access to capital markets should they eventually
choose to go public.
Finally, impact measurement is also viewed as a requirement
for impact investing. For example, Pictet Asset Management pub-
lishes annual impact reports for its environmentally themed funds.
These reports highlight the performance of the funds based on the
Planetary Boundaries framework, using nine scientifically deter-
mined dimensions of environmental sustainability and associated
critical thresholds (see Figure 3). They also report on various aspects
of ESG performance and Engagement activity.
In addition to their thematic characteristics, thematic portfo-
lios can benefit from standard ESG techniques such as ESG integra-
tion in the investment process or engagement with company man-
agement on relevant ESG topics. Such features can strengthen a
fund’s sustainability and impact credentials.
Opportunities and barriersAssets in environmentally themed funds are expanding, driven by
interest among both institutional and private investors in funding
the transition to a low-carbon economy. Their interest is motivated
both by a view that important structural trends create attractive
investment opportunities and the motivation to contribute to
change through sustainable and impact investing.
There are, however, barriers to the rapid adoption of such strat-
egies. In earlier days of thematic investing, some investors had neg-
ative experiences with renewable energy and its boom and bust
cycles. Many are still “once bitten, twice shy”, even though the fun-
damentals of renewables have improved significantly and the
opportunity set has broadened and matured considerably.
Another obstacle to a broad adoption of thematic strategies is
the fact that they typically allocate their assets globally and hence
often do not fit nicely into the traditional regionally focused asset
allocation models that are widespread in the industry.
OutlookThe clean energy revolution is no longer just about renewables or
public subsidies. Increasingly, it is characterised by rapid techno-
logical progress, the adoption of energy efficiency measures as well
as deep-rooted changes in the behaviour of consumers, businesses
and governments worldwide. This confluence is leading to an
inflection point in the adoption of renewables, electric vehicles and
energy-efficient technologies and investments in such solutions.
For investors, that’s a positive change. It means that investment
opportunities are emerging across a far broader and more diversi-
fied range of countries and industries. In other words, clean energy
is no longer a niche.
1 European Environment Agency. (2012). Energy efficiency in transformation. Available at : www.eea.europa.eu/data-and-maps/indicators/energy-efficien-cy-in-transformation/energy-efficiency-in-transformation-assessment-3
2 Bloomberg New Energy Finance. (2019). Electric Vehicle Outlook 2019. Available at : www.eenews.net/assets/2019/05/15/document_ew_02.pdf
3 Earnings Before Interest, Taxes, Depreciation and Amortisation
4 For more information on the Planetary Boundaries Framework see : https://www.stockholmresilience.org/research/planetary-boundaries.html
SWISS SUSTAINABLE FINANCE 15Thematic Equity Funds
Figure 3 :IMPACT REPORTING USING THE PLANETARY BOUNDARIES FRAMEWORK 4
Source : Pictet Asset Management, as of 31.12.2019Note : higher values imply a bigger environmental footprint
MSCI World Energy MSCI AC World Portfolio
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
8.00E-06
7.00E-06
6.00E-06
5.00E-06
4.00E-06
3.00E-06
2.00E-06
1.00E-06
0.00E+00
600
500
400
300
200
100
0
0.06
0.05
0.04
0.03
0.02
0.01
0.00
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
0.10
0.08
0.06
0.04
0.02
0.00
5,000
4,000
3,000
2,000
1,000
0
1.0
0.8
0.6
0.4
0.2
0.0
tCO
2/m
n$
nkgC
P/m
n$
Exti
ncti
ons/
MSY
/mn$
kg N
eq/m
n$
kha/
mn$
m3/
mn$
kmol
H30
+/m
n$m
3/m
n$
kg C
FC-1
1eq/
mn$
CLIMATE CHANGE
CHEMICAL POLLUTIONBIODIVERSITY
EUTROPHICATION LAND USEFRESHWATER
OCEAN ACIDIFICATION
AEROSOLS
OZONE DEPLETION
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 16
2.1 CASE STUDY THEMATIC FUNDS FOR SUSTAINABLE MOBILITY Are Electric Vehicles the Silver Bullet ?
The transportation sector is responsible for 23 % of CO2 emissions in
Europe, of which road transport accounts for 73 %.1 New EU regula-
tions on internal combustion engines aim to accelerate the transi-
tion to a low-carbon economy with concrete emission limits by
2021 (95 gCO2/km). It is estimated that automakers must reduce
emissions by 5 % – 6 % per annum to meet the target, versus the 3 %
p.a. over the last decade.2 However, demand for larger and higher
consumption vehicles is on the rise, with the SUV market share in
the EU having increased to 29 % in 2017 vs. 9 % in 2010. Furthermore,
despite some CO2 benefits, diesel engines cannot offer a full solu-
tion, as they remain fossil fuel-based and associated NOx emissions
are responsible for deteriorating air quality.
In an effort to meet the targets, the industry is thus in the
midst of an electrification process, with electric vehicles (EVs) com-
ing to the forefront. EV passenger cars and technological advances
will enable us to make great strides, but we cannot solely depend on
them to achieve these ambitious objectives. It is also essential that
societal behaviour move towards more sustainable practices. Fur-
ther to their individual actions, investors can contribute by sup-
porting companies that are providing key technologies, or that have
embraced the positive mobility trends. Investors must also bear in
mind that investments in companies that do not adapt their busi-
ness models accordingly may face various financials risks.
Technological solutions to greener transport Companies improving the efficiency of existing technology and
those providing disruptive technology will be essential in meeting
the objectives set for the transport sector. Thematic funds focusing
on climate change will play a key role by specifically targeting and
shifting capital towards these companies. Key technologies inves-
tors should be aware of are outlined below.
— Vehicle weight is crucial, as it correlates with fuel consump-
tion and CO2 emissions. Light-weighting alone is estimated
to contribute at least 6g/km of CO2 emission reductions by
2021.3 Light-weighting technologies can be implemented spe-
cifically for EVs by targeting heavy batteries (e.g. Tesla S bat-
tery weighs 500 kg) or generally for any car through alterna-
tives to heavy metal structures. For instance, a bumper made
by the component manufacturer Plastic Omnium is 5kg lighter
than an average bumper and offers a total reduction of 2.5g
CO2/km due to its improved aerodynamics. In the financing of
light-weight technologies, we must also be conscientious of
the sourcing of raw materials and support responsible mining
operations.
— As EVs and plug-in-hybrid EVs (PHEVs) require different levels
of voltage, there is a great need for converters. Companies pro-
viding converters and other EV solutions (e.g. chargers, electric
motors, transaxle, etc.) will facilitate the transition.
— Transitioning to a 100 % EV world will require time, combus-tion efficiency and accompanying technologies such as
power steering or rolling resistance will be key. As engines
account for 50 % of consumption, providing alternative
models and/or enhancements to ICE motors will be essential
in improving efficiency. For example, Valeo produces 48-Volt
engines, which add energy recuperation to enhance its start-
stop system, reducing CO2 emissions by more than 7 % ver-
sus a classic start-stop system. Hence, suppliers that
enhance their engine solutions can significantly reduce CO2
emissions and help to meet targets, whilst benefiting from
industry trends.
Will technology be enough?Technological advances can help meet certain targets, but societal
behaviour regarding mobility also needs to move towards more
sustainable practices. The rise of SUVs conflicts with these objec-
tives due to their weight and aerodynamics, which account for
approximately 25 % and 20 % of fuel consumption respectively.
Investors must be aware of various societal changes, which are nec-
essary to reach the targets in the transportation industry. First, con-
sumers need to embrace EVs. Second, governments need to ensure
that the supporting energy mix is well aligned with a 2-degree sce-
nario, since the energy mix used to recharge EVs has a significant
impact on CO2 emissions. In a country that relies entirely on coal,
this can represent up to 150g CO2/km.4 As seen in Figure 4, EVs
recharged in France, where the energy mix has a lower carbon
Electric vehicles and technological advances are cru-cial for reaching net zero CO₂ emissions by 2050, but societal behaviour is equally important. Thematic fund investing can play a key role in shifting the necessary capital.
VINCENT COMPIÈGNEDeputy Head of ESG Investments & Research, Candriam
JESSICA CARLIERESG Analyst, Candriam
SWISS SUSTAINABLE FINANCE 17Thematic Funds for Sustainable Mobility
intensity, emit less greenhouse gases over their lifetime than those
recharged in Germany.
Third, car utilisation trends such as the emergence of car shar-
ing, in which EVs and connectivity will play a strong role, are prom-
ising. The shift to shared mobility enables consumers to use the
optimal transport solution for each purpose. For example, users
can choose smaller EV models for daily commutes whilst having
the flexibility to choose larger models for family vacations (see
Figure 5). The shift in mobility behaviour is expected to lead to a fall
in car production and thus a reduction in emissions as automotive
manufacturing is CO2 intensive.
ConclusionThematic funds have a great role to play in transitioning the trans-
port sector towards a low-carbon model by supporting companies
active in the field. Thematic investing has grown in popularity, with
volumes tripling in the past five years.5 We believe that this positive
growth, specifically in thematic funds targeting climate change and
CO2 mitigation solutions, will enable EVs to come to the forefront
for passenger cars. It is essential to finance progress in vehicle
light-weighting and combustion efficiency solutions, and explore
and financially support other technologies, such as hydrogen power,
that may be more suitable for trucks and other heavy weight vehi-
cles. Finally, financing technological advances alone is not enough.
It is crucial that consumer behaviour evolves, together with access
to alternative transportation solutions, to successfully move
towards a low-carbon transportation system.
1 International Energy Agency. (May 2019). Tracking Transport. Available at: www.iea.org/tcep/transport/
2 Deutsche Bank Research. (5 Feb. 2019). Full speed into a low emissions future: Who can make it and at what cost? Deutsche Bank AG.
3 Pearson et al. (January 2015). The Efficient Car – The End of the World (as We Know It). Exane PNB Paribas.
4 Carboncounter.com (n.d.). Cars evaluated against Climate Targets. Available at: http://carboncounter.com/
5 Sardon, Maitane. (5 Jan 2020). “Four Fund Themes That Investors Are Likely to Bet On” Wall Street Journal. Available at: www.wsj.com/articles/four-fund-themes-that-investors-are-likely-to-bet-on-11578279840
Figure 5: THE EVOLUTION OF PURPOSE-BASED TRANSPORT SOLUTIONS
Source: Adapted from McKinsey & Company
TODAY:One vehicle for every trip purpose
Avg. share of annual driving time
Commuting to workShoppingVacationLeisureBusiness
2030:A solution for each specific purpose
Vacation
Leisure
Commuting to work
Business
Shopping
Petrol/Diesel Hybrid Plug-in Hybrid 100% Electric
Total Emissions of Vehicles – EVs Recharged in France (50gCO₂eq/kWh)
Cost (vehicle, carburant, and maintenance US$ / km)
GES Emissions (Life Cycle) gCO₂eq / km)
500
200
0.3 0.4 0.5 0.6 0.7
Tesla Model S
Ford Fiesta
Ford Mustang 5.0L
Nissan Leaf
Toyota Prius Prime BMW 330e
BMW 328d
100
300
400
Total Emissions of Vehicles – EVs Recharged in Germany (400gCO₂eq/kWh)
GES Emissions (Life Cycle) gCO₂eq / km)
500
400
300
200
0.3 0.4 0.5 0.6 0.7
Tesla Model S
Ford Fiesta
Ford Mustang 5.0L
Nissan Leaf Toyota Prius Prime
BMW 330e
BMW 328d
Cost (vehicle, carburant, and maintenance US$ / km)
Source: Carboncounter
Figure 4: COMPARISON OF LIFE CYCLE AUTOMOBILE GREENHOUSE GAS EMISSIONS IN FRANCE AND GERMANY
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 18
Expansion capital to finance low-carbon solutions in different sec-
tors of the economy is increasingly provided by public equity markets.
While ‘sustainable companies’ have historically often been under-
valued by investors, public companies that curb climate change are
beginning to build up valuation premiums against the broader mar-
ket. This new investor perception is a strong incentive for public
companies to promote carbon-efficient products and technologies.
At Carnot Capital, we are pleased to see that this trend is attracting
increasing attention in capital markets.
One company at the heart of this trend is Akasol, a German
provider of battery systems for E-buses. For decades, diesel buses
were the preferred solution for local public transport due to their
durability, efficiency and low cost. With the advent of the low-car-
bon economy, electric concepts are threatening diesel’s dominance.
There is huge potential to reduce carbon emissions in the commer-
cial transport industry. Technology and economies of scale are the
fundamental drivers behind the energy transition. To ensure this
transition’s successful financing, large amounts of capital are now
required.
Today, Akasol is a market leader for high-quality and efficient
battery systems. The company started as a research group at the
Technical University of Darmstadt, with a winning streak in race
competitions for solar automobiles in the late 90s. Research was
later directed towards the field of battery systems. Rather than
developing the battery cell, the company’s efforts were focused on
the management of battery systems, a key technology to be mas-
tered when rolling out electric mobility concepts. At the beginning,
the university itself financed the research activities. When the com-
pany was spun off in 2008, further funding came from private inves-
tors. At this early stage, the amounts necessary could still be pro-
vided by private investors (entrepreneurs and their families).
Financial needs rose when battery technology reached the level
where it had to be integrated into commercial applications.1
The signing of two supply contracts with leading European bus
manufacturers, worth several hundred million euros, pushed
Akasol to the next level.2 Capital requirements to build production
facilities, equipment and working capital amounted to tens of mil-
lions of euros. The company, together with its financial advisers,
considered different sources to fund the expansion. At the end of
this process, Akasol decided to initiate a public listing on the stock
exchange.
The IPO process is a challenging exercise for any company,
even more so for a small, fast-growing ‘newcomer’. The banking
consortium appointed for the IPO decided to focus its efforts on the-
matically aligned investors with a special consideration of impact
in their respective investment processes. Akasol’s management was
able to spark great investor interest and the listing took place in the
summer of 2018 on the German stock market. The company raised
EUR 100m in the IPO process, with a substantial contribution from
investors following impact and sustainability goals. This is proof
that the ever-increasing climate targets present great opportunities
for innovative companies focused on reducing CO2 emissions.
Akasol is currently ramping up its production capacity at great
speed (see Figure 6). The company was able to buy a fully equipped
manufacturing site where diesel technology used to be produced – a
transaction symbolising changing times. Revenues are expected to
more than double in 2019, from EUR 20m to EUR 45m, with another
Public equity markets are increasingly providing expansion capital to finance the transition towards a carbon-neutral economy, for example within the commercial transport industry.
2.2 CASE STUDY FINANCING ALTERNATIVE MOBILITY CONCEPTS WITH PUBLIC EQUITY Electric Buses Replace Diesel
ROLF HELBLINGFounder, Carnot Capital
SWISS SUSTAINABLE FINANCE 19Financing Alternative Mobility Concepts with Public Equity
doubling anticipated in both 2020 and 2021. At the same time, prod-
uct development to further improve efficiency in battery systems
will continue, as battery technology is far from being mature. Glo-
balisation is an additional challenge, as the above-mentioned bus
manufacturers intend to roll out electric buses globally.
Having reached profitability at an early stage, Akasol’s expan-
sion still consumes substantial amounts of cash. Analysts expect
the company to turn cashflow positive by the end of 2022. This
could still change however if, for example, new expansion opportu-
nities arise and production and research capacities are expanded
further. Investors of course would have a say on a potential capital
increase, and, as part of good corporate governance, on all other rel-
evant matters as well. Engaging with portfolio companies is an inte-
gral part of Carnot’s investment process and we maintain an active
relationship with senior management of the company. In the case
of Akasol, the main topics are (i) How will the building of new pro-
duction capacity proceed ? and (ii) Could additional opportunities
arise that would require additional financing ?
Akasol is becoming a success story in the transport industry by
transforming mobility towards a carbon-efficient world. The IPO
played an important role in facilitating the industrial expansion of
the company. Transitioning towards a low-carbon economy requires
deep pockets and public markets enable large amounts of capital to
be raised.
1 Akasol Company Website. (n.d.). Company. Available at : www.akasol.com/en/company
2 Ibid.
Further reading— Carnot Capital AG. (2019). Investments into Energy and Resource Efficiency
with a Measurable Impact. Available at : https://www.carnotcapital.com/_pdf/dokumente/Carnot_Capital_Research_Paper_Impact_Investing_in_Public_Equi-ties_EN.pdf
— Carnot Capital AG. (2019). Carnot Impact Investing – Overview & Case Study Belimo. Available at : https://www.carnotcapital.com/_pdf/dokumente/Carnot_Impact_CaseStudy_Belimo_EN.pdf
5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Figure 6 :PROCEEDS FROM IPO OF EUR 100M ARE USED TO FINANCE THE CAPACITY RAMP-UP
Source : Akasol company presentation* Total installed capacity p.a.
2019 2020 2021 2022
300
1,000
Capacity ramp-up* 2019 – 2022 in MWh
800
200
300
Langen Michigan Darmstadt (new HQ)
800 800
4001,000
1,000
2,500
2,200
4,300
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 20
The proliferation of climate-related indices – a call for greater transparencyFollowing the unmistakable signals and intensifying debate on
global warming, the majority of investors have been confronted with
the question of how to adjust their portfolios in a way that would
significantly contribute to the transition towards a low-carbon econ-
omy. Yet, as of today, it is not possible to reliably measure the effec-
tive long-term impact that asset managers have by allocating (or not
allocating) capital to specific stocks. Nevertheless, asset managers
should evaluate the available solutions and choose the one that best
matches their needs to reposition their portfolios accordingly.
In recent years the financial world has witnessed a rapid and broad
proliferation of ESG-based and climate-related investment indices,
a development warmly welcomed by investors seeking climate-
oriented benchmarks for their equity portfolios. As pointed out by
respected academics, however, the lack of comparability and trans-
parency of these indices remains a serious challenge.1 | 2 The Euro-
pean Commission and other international bodies are currently
developing taxonomies on climate-related activities that should
contribute to clarity in the future. This chapter aims to provide prac-
tical guidance on emission-related measures and on associated cli-
mate risk exposure available for listed equities, focusing on Europe.
Climate-focused indices differ in terms of climate data and index constructionOver the last five years, several index providers have launched cli-
mate-focused indices. Currently, the products available are all
CO2-emission focused and differ mainly in terms of data and con-
struction methods :
— All indices are based on greenhouse gas emissions (GHG) ; how-
ever, it is not clear how the indices differ with regards to the
applied scopes (1, 2 and 3) and the data processing.
— Climate-related data are sourced from different providers.
STOXX, for example, uses both disclosed and estimated (undis-
closed) data, while S&P takes account of disclosure quality in
the process.
— Integration of climate data into index construction differs con-
siderably, as specified in the last column of Table 2 below.
Index providers diverge in terms of targeted measures and by how
much their CO2 emission exposures should be lower in comparison
to conventional indices. For instance, MSCI aims and effectively
achieves a 50 % reduction in carbon intensity, while the targets for
S&P and STOXX remain undisclosed. The fact that comparing differ-
ent methods is so difficult reflects the shortage of climate-reporting
standards – both for companies and for index providers.
3 CLIMATE INDICES FOR LISTED EQUITY Comparing Different Methods to Minimise Climate Risk Exposure
Based on consistent, reliable and independent ESG- related data, an index-based investment approach can be developed that manages to significantly reduce the CO₂ emission exposure of a portfolio, while not compromising the classical investment rationale.
Passive benchmark-linked investment solutions like these will be key for re-channelling major asset flows towards greener investment, thus encouraging the paradigm change towards a low-carbon economy.
PHANOS HADJIKYRIAKOUSenior Product Manager, Carbon Delta AG (an MSCI company)
TOMASZ ORPISZEWSKISenior Lecturer, School of Management and Law, ZHAW
JAN-ALEXANDER POSTHSenior Lecturer, School of Management and Law, ZHAW
SWISS SUSTAINABLE FINANCE 21Climate Indices for Listed Equity
Identifying an adequate climate risk measure and construction method Investors seeking environmental impact need to become familiar
with numerous metrics, including emissions types and scopes, use
of water and energy, and waste management. In this chapter, how-
ever, we focus on equivalents of CO2 emissions.
Most climate-focused index providers quote carbon intensity,
measured as tons of CO2 equivalents per million US dollars of invest-
ment or revenue. Despite its popularity, this metric has its limita-
tions for two reasons. First, it is typically based on company disclo-
sures, which are neither obligatory nor standardised. Second, it is a
backward-looking measure which does not account for reduction
efforts, regulatory effects, or any potential income from carbon-re-
ducing technologies.
Alternative data sources represent a viable solution to this
challenge. Several technology-driven companies such as Carbon
Delta AG, 2° Investing Initiative and Four Twenty Seven have devel-
oped alternative measures in recent years. In this article, we will
focus on Carbon Delta AG’s Climate Value-at-Risk® (CVaR), which is
a forward-looking measure for analysing climate-related risks and
opportunities for publicly traded companies. This does not rely on
company disclosure but instead is consistently calculated, and
hence provides a quantified and comprehensive guidance for inves-
tors seeking to contribute to a low-carbon economy.
The premise of CVaR is based on a two-step process. First, it
aggregates costs and opportunities related to specific CO2 reduction
scenarios over the next 15 years. Second, it calculates how the cost
of regulation-induced transition might affect financial performance
in the immediate future. The metric was formulated using the
widely recognised Value-at-Risk methodology and is calculated
consistently for the majority of listed companies across most sec-
tors and locations. Thus, CVaR provides a quantifiable measure that
enables the investor to identify and choose companies with a low
CO2 emission profile and thus actively contribute to a low-carbon
economy.
Evolution not revolution : Constructing an effective, climate-proof index without sacrificing performanceSwitching to climate-focused indices can lead to concerns about
performance and tracking error. Having said this, European CO2
emission-efficient equity indices provided by S&P, MSCI, and STOXX
as well as the CVaR-based index (see Figure 7) exhibit near-perfect
correlation with conventional benchmarks. On average, the return
correlation oscillates around 99 % and, on a 20-day rolling basis, it
rarely falls below 95 %. This implies that going green can be achieved
without disrupting the sector, country or factor exposures of an
investment portfolio while the individual asset in the selection are
of course different.
As explained earlier, however, the principal challenge lies in
transforming adequate measures of climate change into a func-
tional equity index. The UN PRI lists three general approaches 3,
namely broad market optimised, best-in-class and fossil-free, while
the EU defines two benchmarks, the EU climate transition bench-
mark and the EU Paris-aligned benchmark. For the UN PRI, the second
and third approaches are designed for investors who can accommo-
date negative exclusions, while the first approach is essential for
investors seeking benchmark-like investment products with a pos-
itive climate impact. Here, the existence of general and globally
accepted and respected benchmarks is essential, since passive
investment instruments like ETFs or passive funds that are linked
to such benchmarks open up the investment market to a broad
range of institutional and private investors who would not adapt
their investments strategies to climate goals without the existence
of such benchmarks. To facilitate the transition towards a low-car-
bon economy however, the redirection of large asset flows is imper-
ative – a paradigm change not feasible without benchmark-based
investing.
To analyse the effect on the portfolio, we used the CVaR to
re-weight the constituents of a benchmark index in such a way that
the overall climate transition impact of the portfolio is significantly
reduced while, at the same time, the main characteristics of the
benchmark are retained. For a benchmark portfolio, we use the
INDEX FAMILY
S&P Carbon Efficient Indices
MSCI Low Carbon Indices
STOXX Low Carbon Indices
CLIMATE-RELATED MEASURES AND SCOPE
GHG Emissions Scope 1 and 3 (first-tier suppliers)Fossil Fuel Reserves
GHG Emissions Scope 1 and 2
GHG Emissions Scope 1, 2 and 3
SOURCE OF CLIMATE DATA
Based on company reports and disclosures provided by S&P Trucost
MSCI ESG
Reported data is provided by CDP, estimated data is provided by ISS ESG
INDEX CONSTRUCTION METHOD
Weights are adjusted according to disclosure quality and carbon footprint
Weights are adjusted according to CO₂ emission intensity and to replicate the factor exposures of the parent index
Weights are adjusted according to CO₂ emission
LAUNCH DATE
2018
2014
2016
Table 2 : OVERVIEW OF SELECTED CLIMATE-FOCUSED INDEX FAMILIES
Sources : Company websites of S&P, MSCI, STOXX
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 22
STOXX Europe 600, a market-cap weighted index of the 600 largest
European-listed companies.
Based on the preliminary data analysis, neither a positive
selection bias nor a weighting scheme based purely on CVaR is an
option for viable index construction. Consequently, the best
approach is to sharply lower the weightings of those companies
with the highest costs associated with transition risks, expressed by
their regulatory CVaR values. In effect, the worst companies regard-
ing CO2 emission exposure are more or less excluded from the index
while little else is changed. The resulting index thus has a low allo-
cation for high-risk companies, while the factor, sector and country
profile of the low-risk companies remains virtually unaffected.
Figure 8 illustrates how the resulting CVaR-optimised index is,
by construction, very close to its benchmark concerning country,
size, and industry distribution.
What becomes apparent from Figure 9 is that an optimisation
using the metric CVaR produces an index that has, on average, six
times less climate risk exposure while, at the same time, retaining
the fundamental characteristics of its benchmark. An investor look-
ing to contribute to a low-carbon economy through their invest-
ment choice thus has a passive investment vehicle at hand that
avoids selecting companies with a high CO2 emission exposure but
does not compromise the overall investment process too much.
These findings prove that consistent and forward-looking cli-
mate-related risk measures can be used to construct passive invest-
ment strategies that have a lower future risk associated with regula-
tory CO2 transition changes, provide transparency with regard to
their effective methodology, and are suitable for a wide variety of
investable financial products.
Transparency and effectiveness will become differentiating factorsThe transition towards a low-carbon economy, or towards a green
economy in general, can be accelerated by the redirection of the
major asset flows – institutional as well as private. Climate-aligned
benchmark indices, as well as ETFs based on them, will play a cru-
cial role on this path, as illustrated by mainstream benchmark indi-
ces that have been uniquely successful in attracting enormous
amounts of investment capital. Even so, investors should be aware
that the effectiveness of the capital reallocation heavily depends on
the adequacy and standardisation of the underlying measures. CVaR
constitutes such a measure and the study we reference to has illus-
trated that a passive investment strategy based on a respective
benchmark index delivers both investment continuity as well as a
significant reduction of the CO2 emission exposure. While the way
for climate indices has already been paved, index and data providers
Figure 7 : SUSTAINABLE INDICES TRACK THEIR BENCHMARKS VERY CLOSELY
Sources : Data from Bloomberg, CVaR data from Carbon Delta AG, Limeyard for index construction
S & P Europe 350 vs. S & P Europe 350 Carbon Efficient MSCI Europe vs. MSCI Europe Low Carbon Stoxx 600 Europe vs. Stoxx 600 Europe Low Carbon Stoxx 600 Europe vs. CVAR Europe 600
100 %
90 %
80 %2014 2016 2018
Sustainable vs. conventional equity indices20 day rolling correlations
SWISS SUSTAINABLE FINANCE 23Climate Indices for Listed Equity
need to be transparent about the materiality and scope of the impact
of their methods while making sure they guarantee consistency and
high data quality. Going forward, measures need to be standardised
not only for CO2 emission but for all ESG-relevant criteria. In short,
to further increase investments geared towards facilitating a green
and sustainable economy, sustainable finance needs to accelerate
the change from a single-file qualitative opinion towards a data-
based, objective and holistic assessment. This is a journey that clas-
sical equity analysis underwent decades ago – and that has now
started for sustainable finance.
1 Friede, G., Busch, T. & Bassen, A. (2 Oct. 2015). ESG and Financial Performance : Aggregated Evidence from More than 2000 Empirical Studies. Journal of Sustainable Finance & Investment 5, No. 4 : 210–33. https://doi.org/10.1080/20430795.2015.1118917
2 Busch, T. & Friede, G. (1 July 2018). The Robustness of the Corporate Social and Financial Performance Relation : A Second-Order Meta-Analysis. Corporate Social Responsibility and Environmental Management 25, No. 4 : 583–608. https://doi.org/10.1002/csr.1480
3 UN PRI (13 June 2018). Section Climate Change. How to invest in the low-carbon economy. Low-carbon indices. Available at : https://www.unpri.org/cli-mate-change/low-carbon-investing-and-low-carbon-indices/3283.article
Index PerformanceGross | Base 100=2014
Figures 8 and 9 : MASSIVE REDUCTION OF CLIMATE RISK EXPOSURE, WITHOUT LAGS IN PERFORMANCE
160
120
802014 2016 2018
CVAR Europe 600 * STOXX Europe 600 STOXX Europe 600 Low Carbon
Climate Value at Risk Score for Equity Indices
* Europe 600 CVAR uses the same universe as Eurostoxx 600
3
2
1
02014 2015 2016 2017 2018
STOXX EUROPE 600 Europe 600 CVAR-optimized *
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 24
4 INSTRUMENTS FOR NON-THEMATIC LISTED EQUITY Decarbonisation through Climate Engagement
A broad consensus exists regarding the significant risks that climate
change poses to institutional investors. Investors have several
options when it comes to addressing these risks in listed equity.
They can divest, by excluding carbon-intensive sectors such as the
coal industry from their portfolios, which helps to manage sector
risks related to climate change and sends a strong signal to compa-
nies, civil society and the media. A related approach, but with less
tracking error, lies in the carbon-optimisation of portfolios, which
removes the largest carbon emitters in the most carbon-intensive
sectors from portfolios. Such portfolios have a lower carbon-inten-
sity compared to the standard indices used as benchmarks, allow-
ing investors to manage climate risk at the company level. Third,
investors can choose to finance the energy transition through the-
matic equity investment strategies in the field of renewable energy
or through fixed-income strategies focused on Green Bonds. All
three approaches described above are valuable tools for climate-
aware investors. However, the question remains: how can these
strategies facilitate a swift and large-scale decarbonisation of the
real economy ?
Decarbonising the real economy through engagementFor investors that want to de-risk their portfolios while decarbonis-
ing the real economy, a fourth approach is rapidly gaining traction:
Climate Engagement. Recent academic evidence has shown that
targeted engagement has the ability to stimulate real-world impact
by driving change in companies.1 Within this approach, investors
use their shareholder rights and thereby act as responsible owners
of investee companies. By initiating a board-level dialogue, inves-
tors encourage the companies in their portfolios to adopt a long-
term perspective, to review their strategy and to steer capital
expenditure towards low carbon solutions. During a climate-related
engagement, investors typically urge companies to decarbonise
their business models and align them with the goal of the Paris
Agreement 2. To be credible, Climate Engagement should always
have clearly defined targets to be met within a pre-defined time-
frame. In case the targets are not reached, adequate escalation
measures should be in place such as filing shareholder proposals or
divestment.
Engagement pools in SwitzerlandIn order to maximise influence, investors often opt to join forces
and pool their assets. This approach is cost-efficient, and the con-
certed effort increases the negotiating power of investors in engage-
ment dialogues, offers access to a broader knowledge base and can
help to gain direct access to board members and senior manage-
ment. In Switzerland, the Ethos Engagement Pool Switzerland (EEP
Switzerland) was launched in 2004 by the Ethos Foundation
together with several pension funds. Since its creation, the EEP
Switzerland has emphasised the importance of decarbonisation
and the development of appropriate climate strategies in its dia-
Climate engagement is a valuable approach to facili-tate large-scale and system-wide decarbonisation in the real economy, by conducting an active dialogue with investee companies.
International collaborative engagement initiatives allow investors to pool assets and strengthen their negotiating power to incentivise the world’s biggest carbon emitters to adopt strategies aligned with the low-carbon economy.
MATTHIAS NARRHead Engagement International, Ethos Foundation, Switzerland
SWISS SUSTAINABLE FINANCE 25Instruments for Non-Thematic Listed Equity
logue with companies listed in Switzerland. Concrete demands
were for example the disclosure of carbon emissions, emissions
reduction targets based on climate science (‘Science-based targets’)
and collaboration with suppliers to decarbonise supply chains. In
2017 Ethos expanded its engagement activities to target companies
listed outside of Switzerland and launched the Ethos Engagement
Pool International (EEP International) together with a number of
Swiss pension funds. At the beginning of 2020, EEP Switzerland
counted more than 140 members with total assets of over CHF 220
billion and EEP International counted more than 50 members man-
aging assets in excess of CHF 140 billion.3
Global collaborative engagementLarge global collaborative engagement initiatives to incentivise
companies with the highest decarbonisation potential are powerful
tools to make Climate Engagement even more effective. Therefore,
when the collaborative Climate Engagement initiative Climate
Action 100+ was launched, the members of EEP International signed
up and Ethos took an active role. Climate Action 100+ is one of the
largest investor-led engagement initiatives on climate change ever
initiated. Since its launch in December 2017, Climate Action 100 +
has been signed by over 370 investors. Collectively these investors
represent over USD 35 trillion in assets under management 4, roughly
equal to 45 % of the total global assets under management.5 The ini-
tiative targets 161 companies around the world that represent more
than 80 % of the total global industrial greenhouse gas emissions.
Ensuring that those companies change course and reduce their
emissions is absolutely vital for the decarbonisation of the global
economy.
What is Climate Action 100 + trying to achieve ?The CA100 + initiative has formulated a straightforward engage-
ment agenda with three clear requests 6 for the boards and senior
management of the targeted companies :
— Governance : Implementation of a strong governance frame-
work which clearly articulates the board’s accountability and
oversight of climate-change risks and opportunities.
— Action : Reduction of greenhouse gas emissions across the
value chain, consistent with the Paris Agreement’s goal of lim-
iting global average temperature increase to well below two
degrees Celsius above pre-industrial levels.
— Disclosure : Enhancement of corporate disclosure in line with
the final recommendations of the Task Force on Climate-re-
lated Financial Disclosures (TCFD).7
Climate Action 100 + is a time-bound initiative, with a five-year
period from December 2017 to December 2022 set for reaching the
targets outlined above. This clear deadline creates the necessary
accountability. For each target company, the coordinators of the
initiative have selected one or two ‘lead investor(s)’ to lead the
engagement. The lead investors develop a clear set of engagement
priorities and conduct the engagement activities.
SECTOR
OIL & GAS
OIL & GAS
MINING
TRANSPORT
COMPANY
Repsol
Shell
Glencore
Maersk
ACHIEVEMENTS
In December 2019, Repsol became the first Oil & Gas company to announce a target to achieve net-zero emissions by 2050, including the emissions of its customers (Scope 3 emissions).8
In December 2018, Shell announced its ambition to reduce its carbon footprint by 20 % by 2035 and by 50 % by 2050, including Scope 3 emissions. To operationalise these targets, Shell has set corresponding short-term targets linked to executive remuneration 9 and published a review of its trade association memberships, after which it decided to cancel its membership of the American Fuel and Petrochemicals Manufacturers (AFPM).
In February 2019, after a period of intensive engagement, Glencore announced a number of important commitments such as capping its coal production at current levels, a strategy to align its capex plans with the goals of the Paris Agreement, emissions reduction targets for Scope 1 and Scope 2 emissions and a review of its climate lobbying activities. 10
In December 2018, the shipping company Maersk committed to become carbon neutral by 2050. This commitment is noteworthy because unlike other industries, the shipping industry does not yet have low-carbon technology options readily available, thus it will require extensive R&D spending to develop new solutions from scratch. 11
Table 3 :KEY ACHIEVEMENTS OF CLIMATE ACTION 100 + INITIATIVE TO DATE
Source: Company website and Ethos research
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 26
Climate Action 100 + engagement across carbon-intensive sectorsOver the past two years, some significant successes have already
been achieved, not least in carbon-intensive sectors such as
Oil & Gas, mining and transport. Table 3 outlines some of the land-
mark achievements of the initiative so far.
These initial results demonstrate that by joining forces inves-
tors can influence companies to review their strategies. In view of
the diverging interests of financial markets participants, the exist-
ence of such a broad investor coalition with a common agenda is
essential for incentivising the boards and management of these
companies to embrace change and to align their investment plans
with the Paris Agreement.
Key elements of successful engagementEthos acts as lead investor for three companies located in Switzer-
land and Germany. Based on its experience, important elements for
successful engagement are :
1. Identifying specific and ambitious (but reasonable) focus areas
2. Involving senior management and the board of directors
3. Setting up a well-defined, continuous process with regular
interactions and updates from both sides
4. Attending AGMs to help place a topic firmly on the board
agenda and to raise awareness amongst fellow shareholders
Based on these elements, Ethos together with other lead investors,
was able to push for the corporate commitments outlined in Table 4.
Climate Action 100 + challengesWith a number of companies having made promising announce-
ments, it is now important to track progress made against these
announcements. The organisations behind Climate Action 100 +
have taken note and procured the services of credible research
providers to develop an analytical framework to assess corporate
climate performance and thus evaluate the impact of Climate Action
100 +.18
A second challenge will be to move the entire peer group, i.e.
all 161 targeted companies, towards decarbonisation. It is often dif-
ficult to launch a dialogue and initiate a decarbonisation process
TARGET COMPANY
NESTLÉ
LAFARGEHOLCIM
THYSSENKRUPP
LEAD INVESTOR
Ethos and APG
Ethos and Hermes
Ethos
FOCUS AREA
Decarbonisation (The majority of Nestlé’s emissions occur in its supply chain e.g. as a result of deforestation.)
Decarbonisation (Cement production is a very carbon-intensive process and R&D is needed to develop additional technical solutions to decrease associated carbon emissions.)
Decarbonisation (A majority of the company’s substantial carbon footprint stems from its steel-making business.)
ACHIEVEMENTS
At the end of 2018, Nestlé agreed to report in line with the TCFD recommendations and with a special focus on the sourcing of raw materials. In September 2019 the company committed to net zero emissions by 2050 and put forward measures across its value chain to work towards this target. 12
In December 2019, a key engagement task was met when the science-based targets initiative approved LafargeHolcim’s carbon reduction target. 13 In February 2020, the company announced that it would link its carbon reduction targets to its long-term executive remuneration. 14
To implement its decarbonisation strategy LafargeHolcim appointed a Chief Sustainability Officer to its executive committee 15 and allocated CHF 160 million to reduce its carbon footprint through the use of advanced equipment and technologies. 16
In July 2019, Thyssenkrupp announced its aim to become climate neutral by 2050. 17 This long-term target has been made concrete by a mid-term emissions reduction target of -30 % by 2030, which has been approved by the science-based targets initiative in August 2019.
Table 4 :EXAMPLES OF ACHIEVEMENTS BASED ON COLLABORATIVE ENGAGEMENT
Source: Company website and Ethos research
SWISS SUSTAINABLE FINANCE 27Instruments for Non-Thematic Listed Equity
with companies based outside of Europe and North America, which
are sometimes less accustomed to discussing ESG topics with inves-
tors. A possible solution can be to appoint local lead investors famil-
iar with the local context and language. In fact, academic evidence
shows that engagement conducted by local leads supported by large
international investors can be a very efficient approach to get
engagement results.19 Thus, Climate Acton 100 + is aiming to recruit
more investor signatories based in Asia, Africa and South America.
Besides the dialogue described above, an important part of
meaningful Climate Engagement is consistent proxy voting that
supports climate-related shareholder resolutions at the annual
shareholder meetings of targeted companies. A study by ShareAc-
tion discovered that several Climate Action 100 + signatories failed
to support climate-related resolutions at companies targeted by Cli-
mate Action 100 +, some of which were even filed by the respective
Climate Action 100 + lead investor.20 Voting in favour of climate-re-
lated resolutions is an effective tool to push for decarbonisation at
companies that are less open to requests from their shareholders.
OutlookBy pushing for appropriate governance, action and disclosure, col-
laborative engagement such as Climate Action 100+ will hopefully
contribute to meaningful system-level decarbonisation and encour-
age the boards of the targeted companies to embrace a long-term
perspective and support expensive but necessary investments to
adjust business models and develop low-carbon solutions. The
investors involved in Climate Action 100 + should be proud to play
an active role in this significant global effort.
During the next phase of Climate Action 100 +, additional
emphasis will be placed on curbing corporate lobbying against cli-
mate-friendly policies and achieving a just transition for the work-
ers employed in industries which will have to adapt their business
model because of the transition to a low-carbon economy. In the
future, investors will also have to increasingly think about escala-
tion measures in case of unsuccessful dialogues. This could mean
publicly disclosing the names of laggards or voting against the
re-election of boards not willing to address the demands of Climate
Action 100 +. It could also entail the systematic filing of shareholder
resolutions in jurisdictions where this is possible, and ultimately
the divestment of reticent companies.
For investors seeking to not only de-risk their listed equity
portfolios, but to bring about the necessary system-level decarbon-
isation, engagement, be it pooled or individual, is a crucial strategy.
1 Kölbel, J., Heeb, F., Paetzold, F. & Busch, T. (2019). Can Sustainable Investing Save the World? Reviewing the Mechanisms of Investor Impact. Available at : http://dx.doi.org/10.2139/ssrn.3289544
2 The Paris Agreement aims to limit global warming to well below 2 degrees above pre-industrial levels and requires carbon neutrality by 2050 the latest.
3 Ethos. (n.d.) Company Dialogue. Available at : www.ethosfund.ch/en/prod-ucts-and-services/company-dialogue
4 Climate Action 100 +. (11 Dec. 2019). Investors. Available at : www.climateac-tion100.org/investors
5 Boston Consulting Group. (July 2019). Global Asset Management – Will these ‘20s roar ?. Available at : http://image-src.bcg.com/Images/BCG-Global-Asset-Man-agement-2019-Will-These-20s-Roar-July-2019-R_tcm20-227414.pdf
6 Climate Action 100 +. (11 Dec. 2019). Investors. Retrieved from www.climateac-tion100.org/investors
7 TCFD. (June 2017). Final Report : Recommendations of the Task Force on Climate-related Financial Disclosures. Available at : www.fsb-tcfd.org/publica-tions/final-recommendations-report/
8 Repsol. (2 Dec.2019). Repsol will be a net zero emissions company by 2050 [Press release]. Available at : www.repsol.com/en/press-room/press-releases/2019/rep-sol-will-be-a-net-zero-emissions-company-by-2050.cshtml
9 Shell. (3 Dec. 2018). Joint statement between institutional investors on behalf of Climate Action 100 + and Royal Dutch Shell plc (Shell) [Press release]. Available at : www.shell.com/media/news-and-media-releases/2018/joint-statement-be-tween-institutional-investors-on-behalf-of-climate-action-and-shell.html
10 Glencore. (20 Feb. 2019). Furthering our commitment to the transition to a low-carbon economy [Press release]. Available at : www.glencore.com/en/media-and-in-sights/news/Furthering-our-commitment-to-the-transition-to-a-low-carbon-economy
11 Milne, R. (4 Dec. 2018). Maersk pledges to cut carbon emissions to zero by 2050. Financial Times. Available at : www.ft.com/content/44b8ba50-f7cf-11e8-af46-2022a0b02a6c
12 Nestlé. (12 Sept. 2019). Nestlé accelerates action to tackle climate change and commits to zero net emissions by 2050 [Press release]. Available at : www.nestle.com/media/pressreleases/allpressreleases/nestle-climate-change-commitment-ze-ro-net-emissions-2050
13 LafargeHolcim. (19 Dec. 2019). CO2-reduction targets validated by Science Based Targets initiative (SBTi) [Press release]. Available at : www.lafargeholcim.com/CO2-targets-validated-Science-Based-Targets-initiative-SBTi
14 LafargeHolcim. (27 Feb. 2020). Record net income and free cash flow [Press release]. Available at : www.lafargeholcim.com/full-year-results-2019
15 LafargeHolcim. (25 Sept. 2019). Appointment of Magali Anderson as first Chief Sustainability Officer to the Executive Committee [Press release]. Available at : www.lafargeholcim.com/appointment-magali-anderson-first-chief-sustaina-bility-officer-executive-committee
16 LafargeHolcim. (18 Sept. 2019). LafargeHolcim allocates CHF 160 million to reduce carbon footprint in Europe [Press release]. Available at : www.lafargeholcim.com/lafargeholcim-reduce-carbon-footprint-europe
17 Thyssenkrupp. (2 July 2019). thyssenkrupp sets clear targets: Group aims to be climate neutral by 2050 – 30 percent emissions reduction planned for 2030 [Press release]. Available at : www.thyssenkrupp.com/en/newsroom/press-re-leases/thyssenkrupp-sets-clear-targets--group-aims-to-be-climate-neutral-by-2050------30-percent-emissions-reduction-planned-for-2030-12803.html
18 Carbon Tracker Initiative, CDP, InfluenceMap, Transition Pathway Initiative and 2° Investing Initiative
19 Dimson, E., Karakas, O. & Li, X. (29 Oct. 2019). Coordinated Engagements. Retrieved from : https://ssrn.com/abstract=3209072
20 ShareAction. (Nov. 2019). Voting Matters – Are asset managers using their proxy votes for climate action ?. Available at : https://shareaction.org/wp-content/uploads/2019/11/Voting-Matters.pdf
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 28
Green bonds are a young but rapidly growing marketGreen bonds are an increasingly prominent instrument to create
new investments that support solutions for a low-carbon economy.
The market is relatively young, with the first bond issued in 2007 by
the European Investment Bank (EIB) labelled as a “Climate Aware-
ness Bond”, followed one year later by the World Bank’s “World Bank
Green Bond” for projects aimed at reducing the effects of climate
change. The market remained very narrow and was mostly driven by
supranationals until the first municipal green bond was launched
by the Île-de-France region in 2012. In 2013, the first corporate and
financial issuers arrived on the market, with the Swedish property
company Vasakronan, the French utility company EDF and the
US-based Bank of America.
An acceleration started in 2014 and a big jump occurred
in 2016, when volumes nearly doubled and passed the level of
USD 80 billion.1 A major impact came from the Paris Agreement at
the end of December 2015. Many governments announced climate
targets, and tapping the green bond market was seen as a key tool
to finance green projects. As a result, the first sovereign green
bond was issued by Poland at the end of 2016, followed by a French
issuance in 2017.
In 2019, about USD 259 billion worth of green bonds were
issued, surpassing the 2018 level by 51 %. The new global record was
primarily driven by Europe, where issuances were up 74 % from
2018 and increased the region’s global market share to 45 %. The sec-
ond largest region, Asia-Pacific, with a share of 25 %, experienced
29 % growth, while North America was up 46 %, accounting for 23 %
of green-bond issuance in 2019. Highly welcomed was the fact that
non-financial corporates more than doubled their green bond vol-
umes to USD 59.1 billion. The three single-largest global issuers
were the Federal National Mortgage Association (Fannie Mae) from
the US (8.8 % share), German state-owned KfW (3.5 %) and the Dutch
State Treasury Agency (2.6 %).2
Most optimistic forecasts for 2020 predict an issuance of
USD 350 billion, implying a growth rate of 35 % versus 2019 (see Fig-
ure 10).3 Despite the impressive growth, green bonds still account
for less than 1 % of the global bond market.
Green bonds from Swiss-based issuers listed on the SIX Swiss
Stock Exchange totalled around USD 2.2 billion by year-end 2019, with
the Canton of Geneva, Canton of Basel-Stadt and Zurich Cantonal
Bank being the largest issuers.
What is a green bond ?A green bond is a fixed-income security designed to exclusively
finance new and existing projects that deliver positive environmen-
tal and/or climate benefits. Compared to traditional bonds, the only
difference lies in the defined use of proceeds, as green bonds are
subject to the same capital market and financial regulations as other
listed fixed-income instruments.
It is widely accepted that a bond denominated as a green bond
has to be aligned with the four pillars of the Green Bond Principles.
5 GREEN BONDS Channelling Proceeds into Green Solutions
Green bonds are a fixed-income security designed to finance new and existing projects that deliver positive environmental and/or climate benefits.
With a strong increase in green bond issuance over the past few years, issuers are not only signalling their awareness of environmental risks, but also their will-ingness to exploit attractive low-carbon opportunities.
In order to ensure credibility and provide transparency on the use of proceeds, second-party opinions and voluntary standards help to structure the market.
URS DIETHELMFormer Fixed Income Research, Julius Baer
SWISS SUSTAINABLE FINANCE 29Green Bonds
These principles provide general guidelines on best practices and
are defined by the International Capital Market Association (ICMA),
a self-regulatory organisation and trade association headquartered
in Zurich. The Green Bond Principles are voluntary guidelines that
recommend transparency, disclosure and reporting, and are based
on four core components 4 :
— Use of proceeds
— Process for project evaluation and selection of projects
— Management of proceeds
— Reporting on the actual use of proceeds
While the Green Bond Principles require 100 % of proceeds to be
dedicated to green projects, the non-profit organisation Climate
Bonds Initiative (CBI) 5 includes green bonds in its statistics if at
least 95 % of the bond proceeds are aligned to green assets. It
excludes bonds from its green bond statistics in cases where more
than 5 % of proceeds are used for working capital or general funding
purposes. This mainly affects Chinese issuers, since working
capital is an eligible category for green bonds under Chinese rules.
Use of proceeds The Green Bond Principles provide general guidelines on eligible
green project categories, which include, for example, renewable
energy, green buildings or clean transportation. In 2019, the pro-
ceeds from green bond issuance were primarily directed to energy
(32 % share), buildings (30 %) and transport (20 %) (see Figure 11).
Water projects took a 9 % share and waste a mere 3 %. However, the
Source : Climate Bonds Initiative, E= Climate Bonds Initiative estimate
Figure 10 : GREEN BOND ISSUANCE 2007–2020E
400
350
300
250
200
150
100
50
02007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 E
0.8 0.4 0.9 4.3 1.3 3.5 11.337 45
85
158 171
259
350
USD billion
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 30
share of energy had declined versus 2015, when it accounted for
about 46 %, as most green bond investments were initially made in
renewable energy.
Suitable projects for green buildings include, for example,
energy-efficiency upgrades like LED lighting and new heating sys-
tems, but also improvements in water use. The transport category
includes large state-backed railway companies such as the French
SNCF, Ferrovie dello Stato Italiane or metro rail lines like MTR in
Hong Kong. Given that railways offer an effective low-carbon solu-
tion for transporting goods and people, their high share of the green
bond market does not come as a surprise.
External reviews to support credibilityIn order to create transparency for investors and avoid ‘greenwash-
ing’, the ICMA recommends an external review or a second-party
opinion. The verification refers to the alignment of the green bond
with the four pillars of the Green Bond Principles and/or compli-
ance with the CBI’s Climate Bonds Standards.
The external review is conducted by an organisation with envi-
ronmental expertise such as CICERO, Sustainalytics, Vigeo Eiris or
ISS-Oekom, and is commissioned by the issuer. In some cases, the
second-party opinion provider is involved early in the process and
works with the issuer to develop a framework against which it will
evaluate the projects at the end. Also, rating agencies Moody’s and
Standard & Poor’s provide external views, and auditors such as
KPMG or EY issue verification letters.
In 2019, 86 % of the global green bonds issued (by amount) had
undergone an external review. However, there was also a slight
increase in green bonds without an external opinion, both in value
and deal count. While it is common for US municipalities to have
no rating, there are also an increasing number of other issuers
without an external review. Clearly, prospectus disclosures reviewed
by advisers and auditors deliver some level of comfort, but a
second-party opinion provides better credibility.
Impact and post-issuance reporting Impact reporting aims to provide insights into the environmental
benefits of green bond financing. The objective is to quantify
changes in the performance of an asset, project or portfolio with
respect to a set of relevant indicators and benchmarks. As impact
reporting is gaining importance, the ICMA recommends reporting
not only on the use of proceeds, but also on the expected environ-
mental impact, at least on an annual basis.
Figure 11 : GREEN BOND INVESTMENT ALLOCATION IN 2019 82 % OF GREEN BOND INVESTMENTS ALLOCATED TO ENERGY, BUILDINGS AND TRANSPORT
32 % Energy 30 % Buildings 20 % Transport 9 % Water 3 % Waste 6 % Other
Source : Climate Bonds Initiative
SWISS SUSTAINABLE FINANCE 31Green Bonds
So far, the ICMA has published metrics guidelines for seven sectors :
renewable energy, energy efficiency, sustainable water and waste-
water management, waste management and resource efficiency,
clean transportation and green buildings. However, their recom-
mendations regarding the metrics are limited in scope and the
guidelines were published as an additional document to the Green
Bond Principles. There are also regional guidelines issued by local
governing entities.
In a report published at the end of 2018, Moody’s tried to esti-
mate the environmental benefits of a USD 22 billion green bond
portfolio.6 The rating agency estimated an average carbon emission
reduction of 500 kg per year for each USD 1,000 spent on renewable
energy projects, 175 kg for clean transportation, 60 kg for energy-
efficiency projects and 5 kg for green buildings. In sum, Moody’s
estimated that the green bond sample would save approximately
2.6 million metric tons of annual carbon emissions.
Harmonisation plans for green bond standards by the EU Due to the absence of a consistent global standard, investors’ inter-
est in harmonisation is high. Since Europe is the global leader in
green bond issuance, it comes as no surprise that Europe is taking
the lead in setting global standards.
In 2018, the European Commission released its Action Plan on
Financing Sustainable Growth and established a Technical Expert
Group on Sustainable Finance (TEG) composed of 35 members from
civil society, academia, business and finance. In June 2019, the TEG
published a report 7 on the proposal for EU Green Bond Standards
that makes the following four key recommendations :
— Alignment with the EU Taxonomy (use of proceeds for green
projects)
— Publication of a Green Bond Framework by the issuer
— Mandatory reporting on the use of proceeds
— Mandatory verification of the Green Bond Framework
The proposals are similar to the four pillars of the Green Bond Prin-
ciples, but the EU proposal goes into much more detail and provides
a harmonised classification system for green economic activities.
The EU taxonomy would have the strongest impact, as – based on
the recommendations – bond proceeds could only be classified as
green if the projects were aligned with a detailed list of economic
activities drawn up by the EU. While the taxonomy brings more clar-
ity to what can be considered sustainable, and hence could lead to
higher green bond issuance, it could demotivate or limit issuers
tapping into the green bond market if its definition is too restrictive
and limits the eligible number of green projects.
As opposed to ICMA principles, the proposal by the TEG recom-
mends that allocation and impact reports have to be disclosed
annually or at least once at full allocation. Furthermore, verification
by a third party should be mandatory and the reviewer would have
to be accredited by the EU.
SummaryThe future of green bonds looks promising given the steadily
increasing investor demand and more issuers tapping into the mar-
ket. By using the green bond market, issuers not only signal their
awareness of environmental and climate risks, but also their will-
ingness to exploit attractive low-carbon opportunities. In addition,
environmental aspects are entering the radar screens of the regula-
tors and rating agencies, making it more important for issuers to
articulate their sustainability strategies. Proposals of the EU Action
Plan on Financing Sustainable Growth include the creation of cli-
mate-related benchmarks and the incorporation of sustainability in
investors’ fiduciary duties, which are all potential demand drivers
for green bonds. However, one of the main challenges will be to
ensure that the EU taxonomy is scientifically robust, while at the
same time being practical.
1 Climate Bonds Initiative (2017). Green Bond Highlights 2016. Retrieved from : https://www.climatebonds.net/files/files/2016%20GB%20Market%20Roundup.pdf
2 Climate Bonds Initiative (July 2020). Green Bonds Global State of the Market 2019. Retrieved from: https://www.climatebonds.net/resources/reports/green-bonds-global-state-market-2019
3 Climate Bonds Initiative (n.d.). Homepage – Green Bonds Market 2019. Retrieved from : https://www.climatebonds.net/
4 International Capital Market Association (n.d.). Green Bond Principles. Retrieved from : https://www.icmagroup.org/green-social-and-sustainability-bonds/green-bond-principles-gbp/
5 CBI is an investor-focused non-profit organisation, promoting investments in the low carbon economy. Beside leading investors and banks, CBI's partners further include nations, e.g. Switzerland.
6 Moody’s (4 Dec. 2018). Environmental impact and reporting vary by jurisdiction and asset class. Retrieved from :https://www.moodys.com/login?Retur-nUrl=https%3a%2f%2fwww.moodys.com%2fresearchdocumentcontentpage.aspx%3fdocid%3dPBC_1130746
7 EU Technical Expert Group on Sustainable Finance (2019). Report on EU Green Bond Standard. Retrieved from: https://ec.europa.eu/info/sites/info/files/busi-ness_economy_euro/banking_and_finance/documents/190618-sustainable-fi-nance-teg-report-overview-green-bond-standard_en.pdf
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 32
Green bonds are well-established fixed-income instruments that
can foster positive environmental outcomes such as low-carbon
solutions. Less known are sustainability bonds, for which proceeds
are additionally used for social benefits. Green and sustainability
bonds increase transparency in the capital market and enable inves-
tors to make more informed investment decisions. Investors com-
mitted to sustainability can allocate their investments to such
bonds.
A decisive condition for green and sustainability bond markets
to work is reliable standards to qualify assets and projects as green
and social. It is thus no surprise that the EU Commission empha-
sises the importance of developing a taxonomy for sustainable
activities within the context of its Action Plan on Financing Sustain-
able Growth.1 The Climate Bond Initiative (CBI) is another important
actor in this field. It already started to publish sector criteria for dif-
ferent types of renewable energy, forestry, transport, water infra-
structure, waste management and low-carbon buildings years ago.2
CBI sees the largest potential for green bonds in the building sector
and expects buildings-related green bonds to amount to 40 % of the
green bonds market. Such investments are indeed desperately
needed, as up to 70 % of large city’s greenhouse gas emissions are
related to buildings.3
Raiffeisen Switzerland Cooperative adopted a conceptual
framework for sustainability bonds 4 and issued its first sustainabil-
ity pilot-bond in April 2019. According to the framework, proceeds
of a bond issuance can be used within the Raiffeisen Group to
finance or refinance loans to housing cooperatives and other non-
profit housing organizations. The buildings financed through the
loans typically meet recognised energy efficiency standards, gener-
ate comparably low CO2 emissions and are well connected to public
transport. In addition to these green factors, housing cooperatives
are democratically organised. Buildings are run not-for-profit and
apartments are rented at favourable conditions. The latter adds a
social factor, allowing bonds to qualify not only as green but as
social as well. The Raiffeisen sustainability bond can thus be quali-
fied as a “sustainability bond” according to the International Capital
Markets Association (ICMA).5
Relevant green bond frameworksThe Raiffeisen sustainability bond’s structure meets the ICMA Prin-
ciples for Green Bonds and Sustainability Bonds, which are volun-
tary process guidelines on transparency and disclosure. It further
follows the spirit of the recommendations of the EU Technical
Expert Group on sustainable finance, which state that Green Bonds
should comprise the following four elements: alignment with the
EU Taxonomy, a bond framework, reporting, and verification by
accredited verifiers.6
In line with the ICMA principles, Raiffeisen published a report
that provides detailed information on exactly how proceeds of a
particular bond issued under the framework are used 7, namely an
estimation of the number of buildings financed by the proceeds, the
type of energy efficiency certification and the percentage of certi-
fied buildings, as well as the energy demand and CO2 emissions of
the buildings. The report on the first bond confirms that all build-
As opposed to green bonds, sustainability bonds not only direct investments into environmental outcomes, but also address social issues, as the example of the Raiffeisen Switzerland sustainability bond shows.
5.1 CASE STUDY SUSTAINABILITY BONDS Financing Environmental and Social Outcomes
DR CHRISTIAN HOFERHead Corporate Responsibility & Sustainability, Raiffeisen Switzerland
PHILIPP ACKERMANNGroup Treasurer, Raiffeisen Switzerland
SWISS SUSTAINABLE FINANCE 33Sustainability Bonds
ings are within the top 15 % of Swiss real estate in terms of CO2-effi-
ciency, aligning the bond with the CBI’s criteria for residential
buildings.
At least one external review of a green or a sustainability bond
should be carried out by an independent external validator in order
to assure investors that proceeds are effectively used for the declared
purposes in the declared manner
Key terms of the bondThe CHF 100 million bond was rated A3 by Moody’s and listed on the
Swiss stock exchange. Its maturity is five years and it came with a
0.125 % coupon and a 100.324 % reoffer price. The coupon and
spread of +43 basis points over swap correspond to the pricing of a
conventional five-year Raiffeisen Switzerland bond. The price was
set at this level after market research showed that green bond pric-
ing does not seem to differ substantially from conventional bond
pricing. Given the bond’s terms, influenced by the absolute low
interest rate environment in CHF, the bond was of limited interest
to retail investors. However, it was very quickly and successfully
placed with institutional investors such as banks, insurance compa-
nies, pension funds and some asset managers.
Outcome and experienceThe inaugural sustainability bond issuance was from the very
beginning seen as a pilot initiative by Raiffeisen Switzerland. The
main internal objective was to learn and gain experience with this
still new instrument as an additional source of funding. Overall, the
experience was clearly positive. On the negative side, the conceptu-
alisation and external verification of the bond caused additional
costs compared to the issuance of a conventional bond. However,
the bond was well received and sold very quickly, meeting high
demand on capital markets for such products. Based on this experi-
ence, issuing green or sustainability bonds can widen an issuer’s
investor base.
In order to conceptualise the bond, a certain level of technical
expertise was required, for example capacities to identify assets and
projects qualifying for a green or a sustainability bond. However,
the more decisive factors for the successful launch of the pilot were
support from senior management and dedicated, constructive
teamwork across all involved parties.
Last but not least, the issuance of a green or a sustainability
bond should be put in a wider context. The EU Technical Expert
Group on sustainable finance rightly highlights that such bonds can
only be declared as green if there are actually investments in green
and sustainable assets and projects.8 Facilitating such investments,
e.g. through favourable framework conditions, is thus key to stimu-
lating green, sustainable growth. Given the urgent environmental
and social challenges of our time, the creation of such a favourable
framework should be a political priority of any responsible finan-
cial institution.
1 For an overview of the state of play regarding the EU Technical Expert Group on Sustainable Finance’s work on a Taxonomy for Sustainable Activities see : https://ec.europa.eu/info/publications/sustainable-finance-teg-taxonomy_en
2 Climate Bond Initiative (n.d.). Sector Criteria Available for Certification. www.climatebonds.net/standard/available
3 Climate Bonds Initiative (n.d.). The Buildings Criteria. Available at : https://www.climatebonds.net/standard/buildings
4 Raiffeisen Schweiz (2 April 2019). Konzept. Raiffeisen Sustainability Bond. Available at : https://www.raiffeisen.ch/content/dam/www/rch/pdf/informa-tion-in-english/investor-relations/Information-for-bondholders/raiffei-sen-schweiz-sustainability-bond-konzept.pdf
5 International Capital Markets Association (n.d.) Principles on green, social and sustainability bonds. Available under : https://www.icmagroup.org/green-so-cial-and-sustainability-bonds/
6 Technical Expert Group on Sustainable Finance (18 June 2019). Report on EU Green Bond Standard. Available at: https://ec.europa.eu/info/files/190618-sus-tainable-finance-teg-report-green-bond-standard_en
7 Raiffeisen Schweiz (2 April 2020). Bericht “Performance Kreditpool”. Sustainabil-ity Bond Raiffeisen. Available at : www.raiffeisen.ch/content/dam/www/rch/pdf/information-in-english/investor-relations/Information-for-bondholders/per-formance-kreditpool-bericht.pdf
8 EU Technical Expert Group on Sustainable Finance (18 June 2019). Report on EU Green Bond Standard. Available at : https://ec.europa.eu/info/files/190618-sustainable-finance-teg-report-green-bond-standard_en
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 34
Sustainable real estateThe various definitions of “sustainability” and the different aspects
summarised under this term often can lead to confusion – and this
is not much different in the case of sustainable real estate. While
achieving energy efficiency and reducing CO2 emissions are an
undisputed part of sustainable building, there might be a trade-off
with other sustainability factors. For example, a heritage building
should be insulated and its fixtures updated to improve carbon effi-
ciency. From a social perspective, however, leaving the building’s
original form and providing affordable housing with lower rent
payments may be more desirable. Within sustainable real-estate
strategies, investors must therefore carefully consider which fac-
tors are at play. Nevertheless, reducing CO2 emissions remains a
key target for sustainable real estate investors, and is thus the focus
of this chapter.
Importance of energy-efficient real estate to achieve a low-carbon economy According to the Swiss Federal Office for the Environment (FOEN),1
the greenhouse gases released into the atmosphere within Switzer-
land amounted to 47.2 million tons of CO2 equivalents in 2017 (not
including international air traffic and shipping). 26 % of that is
caused by buildings, making them the second most important
source of CO2 equivalent emissions after transportation. Corre-
spondingly, buildings account for 28 % of global CO2 emissions.2 To
keep global warming below 2 degrees as mandated by the Paris
Agreement, real estate management will therefore need to reduce
CO2 emissions by 36 % by 2030.3 In Switzerland, CO2 emissions are
to be reduced by 2020 by at least 40 % below the 1990 level, accord-
ing to the FOEN. A mix of incentives and regulations are being used
to achieve that target. Investors active in the real-estate market will
need to carefully assess how they can reduce the CO2 emissions of
their holdings while achieving attractive returns. What are the par-
ticipants of the real estate sector doing, what tools do they have at
their disposal and what could be a possible path to achieving a sig-
nificant reduction in carbon emissions ?
LabelsLabels are one possibility to provide some guidance and/or eco-
nomic signals to reduce CO2 emissions. A well-known label in Swit-
zerland is “Minergie”. “Minergie” buildings accomplish reduction
through two major components : Firstly, less energy is needed due
to better insulation and other energy-related upgrading of build-
ings. Secondly, only 10 % of the energy source of “Minergie” build-
ings comes from fossil fuels. Today, one out of twelve newly con-
structed residential buildings have a “Minergie” label and more
than 630,000 people live in such buildings.4 Further guidance exists
in Switzerland with progressive standards such as SNBS 2.0 or vari-
ous SIA norms.5 In the international context, other labels such as
LEED (Leadership in Energy and Environmental Design) or GRESB
(Global Real Estate Sustainability Benchmark) have similar out-
comes as “Minergie”. GRESB is considered as one of the most impor-
6 SUSTAINABLE REAL ESTATE Green Buildings from an Investor Perspective
Empirical evidence shows that green buildings can generate premiums, hence investors should analyse green building projects from a value perspective and not only from a cost perspective.
Greater transparency in labelling methodology would improve comparability and encourage investors to commit to sustainable real estate, as well as help the industry benefit from existing standards.
ULLA ENNEHead Sustainable Investment, Nest Sammelstiftung
DIEGO LIECHTICIO, Nest Sammelstiftung
RAPHAEL PEPEInvestment Analyst, Nest Sammelstiftung
SWISS SUSTAINABLE FINANCE 35Sustainable Real Estate
tant international real estate sustainability ratings and benchmarks.
The GRESB analysis allows users to benchmark their products to
those of the respective peer group and serves as an essential tool to
evaluate and optimise sustainability performance.
Although labels have played an important role in the develop-
ment of sustainable real estate, the industry currently has to deal
with the problem of an excessive number of labels. This can lead to
more confusion than actual guidance. Second, labels often lack
transparency regarding the underlying methodology, which results
in incomparability among labels. Third, labels can become outdated
and since real estate involves long-term assets, investors often hes-
itate to choose a label, in order to avoid being stuck with an obsolete
one. Fourth, labels in general can lead to moral hazard problems. For
example, the Energy Star label helps consumers purchase energy-ef-
ficient air conditioners, but this can lead to increased usage of air
conditioners, since consumers no longer feel guilty about using
such appliances. Still, labelling has enabled progress in sustainable
and green real estate.
Triggers and barriers of green building activity The main problem of providing more sustainable, low-carbon real
estate is that the majority of the real-estate stock is already in exist-
ence. Most of the existing real estate was built long before green or
low-carbon solutions became popular and is therefore not suffi-
ciently energy efficient. As a consequence, the real estate sector is
facing the challenge of retrofitting. Retrofitting of an existing build-
ing can be quite difficult due to the involvement of various stake-
holders, especially tenants. Also, real estate owners face the trade-
Figure 12 :TRIGGERS OF GREEN BUILDING ACTIVITY
Source : World Green Building Trends Report 2018
0 % 10 %5 % 15 % 20 % 25 % 30 % 35 % 40 %
Percentage of survey respondants
Branding/PR
Higher building values
Market transformation
Internal corporate commitment
Lower operating costs
Right thing to do
Market demands
Healthier buildings
Environmental regulations
Client demand
25
25
27
33
34
17
15
15
13
23
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 36
off between social and environmental aspects : total renovation can
lead to a rent increase almost up to the level of new buildings, elim-
inating previously affordable housing. A specific challenge is also
the retrofitting process itself. Both possibilities, i.e. letting the ten-
ants stay inside the building while renovating or terminating their
leases before the renovation, can lead to various problems. Further-
more, passing on the renovation costs is quite challenging due to
Swiss tenancy law. In addition, tenants only prefer renovated green
buildings over new ones if the rent payments remain affordable.
These factors could explain why only 37 % of green building activity
comes from the retrofitting of existing buildings.6 Nevertheless, the
number-based percentage of green projects is rising in general,
from roughly 19 % in 2015 to 27 % in 2018.7
This increase in green building activity is mainly driven by
commercial factors, regulation and idealism. Figure 12 shows the
results of a survey among architects, designers, contractors, build-
ers, specialists, owners, developers, engineering firms, and inves-
tors. Client demands and environmental regulations are the most
important triggers, followed by healthier buildings, market
demands, idealism (“Right Thing to do”), as well as lower operating
costs. Interestingly, higher building values or marketing aspects
(“Branding/PR”) are less important.
On the other side, Figure 13 gives some indication of what con-
strains the growth of green building activity. The most important
barrier is higher (perceived or actual) initial cost, although its
importance has declined significantly since 2012 from 76 % to 49 %
in 2018. This decline shows that the perception of green buildings
as being expensive without many economic advantages is decreas-
ing. Other major barriers are the lack of political support or incen-
tives, affordability and the lack of public awareness.
Given these drivers of and barriers to green building activity,
the question is: What can be done to further promote low-carbon
real estate ?
Figure 13 :BARRIERS TO INCREASED GREEN BUILDING ACTIVITY
Source: World Green Building Trends Report 2018
Lack of public awareness
Higher (perceived or actual) first costs
Lack of market demand
Lack of political support or incentives
Lack of trained / educated green buildings professionals
Affordability
Unable to prove business case
2018 2015 2012
0 % 10 % 20 % 30 % 60 % 70 % 80 %50 %40 %
Percentage of survey respondants
SWISS SUSTAINABLE FINANCE 37Sustainable Real Estate
Towards greener real estate As discussed above, one major problem is finding standard sustain-
ability principles for real estate. Labels such as “Minergie” or GRESB
are a good starting point, but the principles should go further and
encompass everything from the design of a building to end-of-life
considerations. This includes the recycling and disposal of the var-
ious materials after the demolition of a building, criteria not often
included when labels are given. Indirect CO2 emissions through
insufficient connections of green buildings to public transportation
is also a consideration that should not be overlooked. Finally, inter-
national acceptance is key and the World Economic Forum launched
an agenda to develop common practices in 2016.8
Next, the barriers to green building and refurbishment activity
should be removed, or at least reduced. The most important barrier,
i.e. higher initial costs, is the easiest to overcome. High initial costs
are irrelevant (or only a financing problem) if the project provides
enough financial value. There is evidence that green properties or
energy-efficient buildings achieve premium prices in real estate
markets, although this may decrease over time.9 | 10 | 11 The reason for
these premiums may be due to lower expenditures, higher rents
and/or higher occupancy rates. The question remains, however,
whether investments in green buildings are net present value (NPV)
maximising projects, i.e., if they maximise (long-term) value in a
monetary way ? If so, there would be no economic rationale against
green building projects. Unfortunately, no general answer can be
given, because of the project-specific nature of real-estate invest-
ments. However, given the size of the premiums for green buildings,
the extra initial costs can be between 5 % to 31 % of the green build-
ing value – based on the various results of previous empirical stud-
ies 12 – and the green real estate project would still earn a higher NPV
than a comparable non-green project. Even taking the lower esti-
mate of the premium of 5 %, a sizable amount could be invested in
energy efficiency for the project to still pay off. Nevertheless, the
value of a building depends on many factors that change over time.
Takeaways for institutional investorsThere are different takeaways for both direct and indirect investors
(i.e. investors investing in real estate through funds or REITs). How-
ever, they both need to define a realistic sustainability strategy and
analyse CO2 emission reduction in the actual portfolio. While direct
investors should assess their portfolio regarding their sustainability
potential with retrofitting or new projects, indirect investors need to
compare traditional funds with sustainable alternative real estate
funds. Consequently, direct investors have much more leverage to
reduce the CO2 emissions of their real estate assets. Yet, both types of
investors should be critical, weigh their options, and build up knowl-
edge to reconstruct their real estate portfolio. In addition, setting tar-
gets and reporting on key figures such as energy consumption or CO2
emissions per square metre – regardless of the labels employed – are
important steps to achieving a low-carbon real estate economy.
1 FOEN (2019). Climate in brief. Available at : https://www.bafu.admin.ch/bafu/en/home/topics/climate/in-brief.html
2 UN Environment and International Energy Agency (2017). Towards a zero-emis-sion, efficient, and resilient buildings and construction sector. Global Status Report 2017. https://www.worldgbc.org/sites/default/files/UNEP%20188_GABC_en%20%28web%29.pdf
3 World Economic Forum (2016). Environmental Sustainability Principles for the Real Estate Industry. http://www3.weforum.org/docs/GAC16/CRE_Sustainability.pdf
4 Aeberhard, S. (Januar 2018). Minergie in Zahlen. Faktor Minergie (47), 24-25.
5 For more information on SNBS 2.0 see : https://www.snbs-cert.ch/ For more information on SIA norms see : http://www.sia.ch/de/dienstleistungen/sia-norm/
6 Dodge Data & Analytics (2018). World Green Building Trends 2018. Smart Market Report. https://www.worldgbc.org/sites/default/files/World%20Green%20Building%20Trends%202018%20SMR%20FINAL%2010-11.pdf
7 Ibid.
8 World Economic Forum (2016). Environmental Sustainability Principles for the Real Estate Industry. http://www3.weforum.org/docs/GAC16/CRE_Sustainability.pdf
9 Eichholtz, P., Kok, N., Quigley, J. M. (2010). Doing Well by Doing Good? Green Office Buildings. American Economic Review 100, 2494–2511.
10 Salvi, M., Horejájová, A. and Müri, R. (2008). Minergie macht sich bezahlt. Zürich : CCRS und Zürcher Kantonalbank.
11 Miller, N., Spivey J., Florance A. (2008). Does Green Pay Off? The Journal of Real Estate Portfolio Management 14, 385-400.
12 Baumann, R. (2017). Sustainable Real Estate. In : Handbook on Sustainable Investments. Zurich: Swiss Sustainable Finance.
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 38
This case study provides a roadmap derived from sustainable real
estate funds with direct holdings. The author describes how to
actively manage properties of an investment fund based on a strat-
egy that has provided attractive financial returns over the years,
while successfully reducing carbon emissions.
Step 1 : Energy monitoring and optimization – focus on renewables and district heatingThe first step to reduce recurring operational costs, energy con-
sumption and the carbon output of the portfolio is monitoring the
properties. Figure 14 presents the annual energy consumption and
CO2 output of selected properties. The analysis is based on account-
ing data for commercial properties from J. Safra Sarasin Swiss and
European real estate funds.
At J. Safra Sarasin, the following observations were derived
from the monitoring of properties with a focus on renewable energy
and energy efficiency solutions :
— Commercial properties are electricity intensive, while residen-
tial properties are heating energy intensive. Thus, our main
focus for commercial properties is to improve electricity, light-
ing and ventilation, while for residential buildings it is on effi-
cient heating systems.
— Proper time frames (e.g. minimum usage during the night or
weekends for office space) and reconfiguration of the ventila-
tion and heating pumps may save up to 15 % of total energy
consumption.
— Expected and actual consumption levels may vary. We identify
inefficiencies by benchmarking all properties, based on the pre-
vious year’s consumption and on design values or energy cer-
tificates. This allowed us to identify e.g. electricity pumps that
were not properly configured and were subsequently optimised.
— Gas heating systems are CO2 intensive and eco gas solutions
often more expensive than natural gas. Therefore, we prefer
heating solutions not based on fossil fuels, such as heating
pumps or district heating.
— District heating is efficient, and the proportion of renewable
energy consumption within district heating has increased.
This is, in our view, the most promising solution to decrease
CO2 emissions, while also supporting the local economy.
By assessing a real-estate portfolio in this detailed manner, funds
can better implement an active management strategy, compare
their real-estate assets, and identify which assets to concentrate on
in order to improve the portfolio energy consumption and CO2 out-
put levels. Only then is an investor well equipped to move to step 2.
This case study highlights the key elements of a sustainable real estate investment strategy, which includes an in-depth energy analysis of real estate properties, provides a multi-year building upgrade programme and explores the potential of each prop-erty within a portfolio to lower its carbon footprint, while increasing rental levels and the value of real estate assets.
6.1 CASE STUDY GREEN REAL ESTATE FUNDS Providing a Future-Fit Portfolio while Reducing Carbon Emissions
ALEXANDROS GRATSIASSustainable Real Estate Investments Analyst, J. Safra Sarasin
SWISS SUSTAINABLE FINANCE 39Green Real Estate Funds
Step 2 : Sustainability strategy & upgrades – focus on automation,ventilation and lightingUnder the Energy Efficiency Directive, EU countries must draw up
long-term national building renovation strategies. Switzerland’s
Federal Council has also developed the Energy Strategy 2050, which
focuses on increasing renewables and energy efficiency. We thus
anticipate that regulators in Switzerland and Europe will tighten
their codes for existing buildings. Future measures will include
revised energy efficiency directives and energy audit obligations for
investment funds.
To align with this expectation, a standard 10-year mainte-
nance plan is implemented for properties with low energy ratings
(Figure 15). Given that massive energy savings can be achieved by
retrofitting existing buildings, the plan below is key to a successful
transition to low-carbon real estate.
— Short term measures – quick wins (1-year time frame) This category focuses on simple optimisations with low invest-
ment costs, taking into consideration the feedback from build-
ing and operational experts. We also invest in the automation
of the property, which results in energy and carbon output
optimisation.
— Medium term measures – higher efficiency (5-year time frame) In this phase, the investments focus on selective technical
upgrades of infrastructure that is close to the end of its life
cycle. The optimizations concentrate on lighting systems and
local units from the ventilation or the heating system.
— Long Term Measures – Capex Intensive Commercial properties with a low energy rating and no longterm
upgrade plan are bound to one-time high capital expenditure
(capex). Property funds often face the dilemma to either sell the
property at a discount before the main rental contracts expire,
or to enter into an extended refurbishment programme. Under
such a program, measures focus on a complete refurbishment
of the infrastructure, internal space and shell of the building.
In conclusion, at J. Safra Sarasin, we integrate the above elements on
three levels during our investment process. First, by sourcing and
selecting the right investments, i.e. properties that are suitable for
implementing the above strategy. Second, during acquisition and
due diligence, we use the above elements as a framework to create
cost/return-based scenarios for the next ten years on a property
level. Finally, with active management throughout the lifecycle of
the property, in combination with lease expirations or lease renewal
options during the holding within the funds. This consistent meth-
odology has, over the years, provided longer lease terms and higher
rental levels, resulting in higher property valuations. We believe
that future-focused real estate funds can play a key role in the tran-
sition to a carbon-neutral future and that a long-term approach
helps investors stay ahead of future challenges.
Figure 15 :STANDARD 10-YEAR MAINTENANCE PLAN
Source : Bank J. Safra Sarasin 2019
– Simple optimisations– Reconfigurations
of ventilation– Monitoring system– Renewable energy
provider– Accessibility with
wheelchair– Lighting – LED– Movement sensors– Mobility upgrade– Air handling units– Pumps for
heating/cooling
– Refurbishment– Insulation– Conversion
to district heating or heating pump
– Upgrade of ventilation
– Solar PV panels
Timeline
Futu
re O
rien
tati
on
YEAR1
YEAR5
YEAR10
Figure 14 :REAL ESTATE ASSET CARBON EMISSIONS AND ENERGY USAGE MONITORING
Source : Bank J. Safra Sarasin 2019
200
175
150
125
100
75
50
25
0
CO₂ (total) kg/m2
Energy (total) kWh/m2
12. Asset
GRE
SB P
eer
Aver
age:
155
kW
h/m
2
Estim
ated
Pee
r Av
erag
e: 2
40 k
Wh/
m2
Estimated Peer Average: 70 kWh/m2
ASSET SIZE15,000 m2
10,000 m2
5000 m2
2000 m2
Renewable energy District heating Heating pump Gas
1. Asset
2. Asset
3. Asset
4. Asset
5. Asset
6. Asset
7. Asset
8. Asset
13. Asset
9. Asset
14. Asset10. Asset
11. Asset
Selected Universe Average
50 100 150 200 250 300 350 4000
15. Asset
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 40
IntroductionSwiss banks primarily support energy efficiency and sustainable
construction in the mortgage business by offering reduced interest
rates for mortgage loans when energy efficiency criteria are met,
such as when a property has a MINERGIE certificate or improves to
a higher energy standard such as the cantonal building energy per-
formance certificate (GEAK). Examples of this are energy loans from
Zürcher Kantonalbank 1 which have been on the market for more
than 25 years, the special “renovation” offer from UBS 2 or the “eco
discount” from Raiffeisen 3. The Swiss Federal Office of Energy is
providing the basis for issuing energy-efficiency mortgages with its
2050 vision for the stock of buildings 4 and the building label family
GEAK, MINERGIE, SNBS and 2000 Watt Areal. In the EU, the Direc-
tive on the Energy Performance of Buildings (2010/31/EU) is the
basis for implementation in EU countries.5 In Germany, for example,
energy performance certificates have been mandatory for all resi-
dential buildings since 2009 because of the Energy Saving Regula-
tion.6 An increase in transparency in the context of energy effi-
ciency for buildings also seems realistic in Switzerland. The Canton
of Fribourg, for example, requires a GEAK for all property transfers.7
This development shows that transparency and comparability are
increasing because of various factors, such as stricter regulations in
the context of the federal government's Energy Strategy 2050 8, the
digital transformation or the increased availability of data. This is
leading to greater public awareness. However, from the viewpoint
of the lending banks the proportion of “eco” mortgages is very low
compared to overall mortgage loans (Table 5 based on the 2016–2018
ZKB annual reports is an example of this).
One would expect that the price reduction incentive would
lead to a correlation between the amount of “eco” mortgages issued
and the growing importance of energy efficiency.
Experience with energy efficiency mortgagesMortgage products are increasingly becoming an exchangeable
product. New market participants such as pension funds or compar-
ison portals, as well as the expansion of digital offerings (online
mortgages), are diversifying market offers and intensifying the
pressure on margins. The persistently low interest-rate environ-
ment and declining margins are continuously reducing providers'
leeway when it comes to pricing. However, the market for financing
renovations has great potential. Three-quarters of all buildings in
Switzerland are more than 30 years old 10, and the energy renovation
rate is slightly under 1 % 11, although renovation projects can cur-
rently be financed at a reasonable price. The Energy Strategy 2050 of
the federal government provides for a 43 % reduction of energy con-
sumption by 2035.12 About half of primary energy consumption in
Switzerland occurs in the area of real estate.13
In Raiffeisen's view, barriers for implementing refurbishments
include a lack of renovation strategies. Currently, renovation for
7 ENERGY EFFICIENT MORTGAGES Supporting Energy Efficiency and Sustainability in Real Estate
Due to the enormous scope for Switzerland to achieve energy savings through upgrading existing properties, the market for services supporting property moderni-sation has great potential, while current instruments, such as interest-rate reductions on mortgages (e.g. “ eco ” mortgages) only have limited effects.
The approach of a long-term use and renewal strategy for properties is one way of increasing the renovation rate. This allows for optimal financial planning and appropriate actions to be taken.
DANIEL JAKOBIDeputy Head Innovation & Development, Raiffeisen Switzerland
SWISS SUSTAINABLE FINANCE 41Energy Efficient Mortgages
personal residential property as well as privately owned investment
properties is primarily triggered by an event (a damage event such
as a defective heating system and remedying the damage by simply
replacing the heating system). There is often a lack of overview and
corresponding planning for a long-term renovation strategy com-
bined with a use strategy, even when it comes to questions such as
housing for senior citizens, selling, or exploiting potential through
the addition of levels, or demolition and rebuilding. Associated
with this, there is usually a lack of planning for an optimum financ-
ing and investment strategy. This becomes especially clear in the
context of condominium ownership associations. Contributions
tend to be inadequate to ensure long-term, sustainable renovation.
In this context, the challenge arises about the best way to increase
the renovation fund. If the renovation rate is to be raised because of
tighter regulation, a trend which can be observed to some extent,
the owners – and thus indirectly the lenders – are confronted with
the challenge of raising the necessary investment. According to a
survey, banks can play an important role when it comes to financing
energy efficiency as Figure 16 shows.
Regulation as a game changerIt is reasonable to assume that in the medium-term the implemen-
tation of the federal government's Energy Strategy 2050 will have a
substantial influence on the renovation rate and on the need for
financial investments in the building sector. Even if the process of
transferring the cantonal model regulations into cantonal legisla-
tion by 2020 is somewhat delayed (see Figure 17) 15, it is foreseeable
that we are in the midst of a transition.
Table 5 : PROPORTION OF “ ECO ” MORTGAGES COMPARED TO OVERALL MORTGAGE LOANS
TOTAL VOLUME OF ECO MORTGAGES
1.2 billion
1.2 billion
1.16 billion
MORTGAGE LOANS
81.3 billion
79.1 billion
77.3 billion
YEAR
2018
2017
2016
PORTION
1.5 %
1.5 %
1.5 %
Source : ZKB Annual Reports 2016 – 2018 9
Figure 16 :FINANCING NEEDS OF HOMEOWNERS FOR RENEWABLE ENERGY TECHNOLOGIES
Source : Raiffeisen & University of St. Gallen, 2015 14
“ At what investment sum would you have to take out a loan to install renewable energy technology or to implement energy efficiency measures in your house ? ”
13 % Up to CHF 10,000 49 % CHF 10,000 – 49,999 19 % CHF 50,000 – 99,999 18 % Over CHF 100,000
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 42
At a higher level, the signing of the Paris Climate Agreement is a
substantial driver. Switzerland has obligated itself to a reduction
target of minus 50 % by 2030 compared to 1990, and has ratified the
agreement.16 Because of the complete revision of the CO2 Act, the
reduction obligations in national climate legislation are to be
implemented after 2020. At the European level, examples of sub-
stantial drivers are the EU Action Plan on Financing Sustainable
Growth 17 or the Energy Efficient Mortgages Initiative 18, which is
directly connected with “ eco ” mortgages. The specific goal of this
latter initiative is to create a standardised mortgage to provide
incentives to building owners to improve the energy efficiency of
their buildings or to finance energy-efficient real estate at better
financing terms.
Energy strategy opens up business opportunitiesSustainable development of the stock of buildings in Switzerland
opens up substantial business opportunities for Swiss banks/lend-
ing institutions in addition to bringing benefits to owners such as
increases in living comfort, cost savings and greater profitability,
value preservation and positive environmental effects :
— Regular income by financing long-term renovation strategies
and thus qualitative growth in the mortgage business with a
focus on housing stock ;
— Solidifying long-term client relationships and thus improving
client goodwill ;
— Possibilities for cross- & upselling and thus generating income
in areas such as the commission business ;
— Additional risk reduction in the finance portfolio by better
value preservation of collateral (see Figure 18).
Barriers for banks and clientsThere are various barriers to using these kinds of business opportu-
nities, not only on the part of owners but also on the part of lending
institutions.
For owners, the lack of a use strategy and an overview for the
property are common barriers. There are not enough qualified pro-
fessionals to help uncommitted owners produce a use and renova-
tion strategy and oversee implementation decisions. Development
in this field can already be partially seen, in cases such as the can-
tonal or municipal energy agencies.
For lenders, the costs of processing a mortgage in relation to
the average low investment costs/mortgage volume are a challenge.
The great complexity and diversity of the topic and the lack of
knowledge are a challenge for both owners and lenders. In addition
to this, there is a somewhat lower return on investment and a longer
time horizon.
Not least is the complication that the cantons are responsible
for building stock in Switzerland. Thus, there are no standardised
nationwide regulations (for example the GEAK obligation). The
regional variations in legislation and subsidy policies make it chal-
lenging for market participants to develop simple, understandable,
scalable products and services for clients on a national level.
Figure 17 :IMPLEMENTATION OF THE CANTONAL MODEL REGULATIONS IN THE AREA OF ENERGY
Source : AEE Suisse, 2020
Completely or partially implemented Post-parliamentary phase Parliamentary phase Pre-parliamentary phase Certain modules rejected partially implemented Model rejected
TG
ZH
LU
SH
AG
ZG
ARBL
SZ
AISO
NW
SG
JU
OW
GLNE
UR
GRVD
TI
FR
VS
BE
GE
SWISS SUSTAINABLE FINANCE 43Energy Efficient Mortgages
EnablersIn addition to classic instruments such as subsidies and tax incen-
tives, there are other options that are perhaps not quite as apparent
at first sight to promote sustainable development and to take advan-
tage of new business opportunities :
— Systematic planning of real estate investments – depending on
the individual (planned) living conditions of the client (long-
term use & renovation strategy) ;
— Introducing a merit-rating system in credit risk management
on a GEAK basis regarding issuing criteria for mortgages ;
— Cross-industry, business ecosystems, which bring various
actors closer together (owners, industry associations, SMEs and
financial service providers). New products, services and busi-
ness models can develop in combination with a systematic
focus on real estate.
ConclusionExisting instruments like interest rate reductions on mortgages,
e. g. “ eco ” mortgages, have in the past as well as in the present only
shown limited effects although the market and renovation potential
in the real estate sector are large. In addition to adjusting the under-
lying conditions, systematic, long-term planning of real estate
investments enables optimal financial planning and implementa-
tion of actions. Consequently, this increases the renovation rate,
risks are reduced, the existing portfolio is optimised and new busi-
ness models are developed together with additional stakeholders.
1 ZKB (2019). Energetisch renovieren mit der Zürcher Kantonalbank. Available at : https://www.zkb.ch/de/pr/pk/finanzieren-eigenheim/alles-rund-um-ihr-eigen-heim/eigenheim-newsletter/energetischrenovierenmitderzuercherkantonal-bank
2 UBS (n.d.). Mortgages. Special offer “renovation”. Available at : https://www.ubs.com/ch/de/swissbank/privatkunden/hypotheken/spe-zialangebote/renovation.html
3 Raiffeisen (2017). Broschüre Eco-Vergünstigung für Ihre Hypothek. Available at : https://www.raiffeisen.ch/content/dam/www/rch/hypotheken/pdf/Produkt-blatt-Eco-Verguenstigung.pdf
4 Bundesamt für Energie (2018). Factsheet Gebäudepark 2050 – Vision des BFE. Available at : https://www.bfe.admin.ch/bfe/de/home/news-und-medien/pub-likationen.exturl.html/aHR0cHM6Ly9wdWJkYi5iZmUuYWRtaW4uY2gvZGU-vc3VjaGU=.html?keywords=&q=Geb%C3%A4udepark+2050&from=&to=&nr=
5 European Union (2010). EU Directive on the Energy Performance of Buildings : Available at : https://eur-lex.europa.eu/legal-content/DE/TXT/?uri=CEL-EX:32010L0031
6 Bundesamt für Justiz (2007). Energiesparverordnung. Available at : https://www.gesetze-im-internet.de/enev_2007/index.html
7 Etat de Fribourg (2014). Informationsbulletin für Freiburger GEAK-Expertinnen und Experten. Available at : https://www.fr.ch/sites/default/files/contens/sde/_www/files/pdf66/Message_1_cecb_de.pdf
8 Swiss Federal Office for Energy (n.d.). Energy Strategy 2050. Available at : https://www.bfe.admin.ch/bfe/en/home/policy/energy-strategy-2050.html
9 ZKB (n.d.). Annual Report – Archive. Available at : https://www.zkb.ch/en/lg/ew/dsc-investor-relations/annual-report.html
10 Bundesamt für Statistik (n.d.). Gebäude- und Wohnstatistik. Bauperiode. Available at : https://www.bfs.admin.ch/bfs/de/home/statistiken/bau-wohnungswesen/gebaeude/periode.html
11 SIA (n.d.) Modernisierung des Gebäudeparks Schweiz. Available at : https://www.sia.ch/de/themen/energie/modernisierung-gebaeudepark/
12 Bundesamt für Energie (2018). Slide presentation : Energy Strategy 2050 once the new energy act is in force. Available at : https://www.bfe.admin.ch/bfe/de/home/politik/energiestrategie-2050/dokumentation.html
13 Schweizerische Energie-Stiftung (n.d.). Energy consumption in buildings. Available at: https://www.energiestiftung.ch/energieeffizienz-gebaeude.html
14 Raiffeisen & Universität St. Gallen (2015). Fifth client barometer for renewable energies. Available at : https://iwoe.unisg.ch/-/media/dateien/instituteund-centers/iwoe/news/150522_kundenbarrometer2015_e_web.pdf?la=de&hash=52031199CD7532C8CB82732B879FAF5E35C06DCB
15 AEE Suisse. (2020). Mustervorschriften der Kantone im Energiebereich (MuKEn). Stand 1.1.2020. Available at : https://www.aeesuisse.ch/de/politik/mus-tervorschriften-der-kantone-im-energiebereich
16 BAFU (n.d.). The Paris Climate Agreement. Available at : https://www.bafu.admin.ch/bafu/de/home/themen/klima/fachinformationen/klima--internationales/das-uebereinkommen-von-paris.html
17 PwC (2019). Paradigm shift in financial markets. The economic and legal impacts of the EU Action Plan Sustainable Finance on the Swiss financial sector. Available at : https://www.pwc.ch/en/publications/2019/paradigm-shift-in-financial-mar-ket-EN-web.pdf
18 EEM Initiative (n.d.). Homepage. Available : https://energyefficientmortgages.eu/
Figure 18: PRICE DIFFERENCES BASED ON THE BUILDING CONDITION
Source : Raiffeisen Internal Research, 2019
Average price (2017–2019), in 1,000 CHF
1,500
1,300
1,100
900
700
Poor Intact Renovated
>50 years 20 to 50 years 5 to 20 years
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 44
For private equity investment managers, investing in the low-
carbon economy can take many forms: from acquiring non-listed
companies whose products or services help reduce emissions, to
developing large-scale renewable energy platforms or public trans-
portation projects. Private equity investment managers are not only
ideally positioned to invest in businesses or projects that support
the low-carbon transition, but also to better manage the environ-
mental impact of their portfolio assets compared to their public
market peers. This is largely due to the nature of private equity
investments and their inherent corporate governance advantages. A
private equity investment manager typically has a strong influence
over how assets are developed and managed. This is particularly
true for direct investments, where an active, hands-on ownership
model provides opportunities to work closely with portfolio assets
to implement sustainability initiatives, such as energy efficiency
and waste management programmes.
Assessing the opportunityAs the low-carbon economy is still underdeveloped, it represents an
interesting investment opportunity for many investors, as well as
the chance to support global action on climate change. For instance,
the global shift towards clean and more efficient energy is a key
trend that is expected to continue to generate attractive investment
opportunities for private equity investment managers for many
years to come.
The agreed international goal of reducing greenhouse gas
emissions is at the heart of energy policies almost everywhere and
is likely to be achieved through a combination of improved energy
efficiency and a higher share of renewables in the energy system. It
is estimated that USD 11.5 trillion will be invested in new power gen-
eration assets between now and 2050, of which 86 %, or USD 9.9 tril-
lion, will go to zero-emissions technologies.1 This means around
USD 300 billion is required per year for clean energy investment.
The bulk of this investment will happen in non-OECD emerging
economies.
Irrespective of any political or policy developments, OECD
developed markets will also continue to add new clean energy capac-
ity, fuelled by new demand drivers such as the boom in electric vehi-
cles, among others. Another important contributor to demand is the
increasingly competitive cost of renewable energy compared to tra-
ditional energy sources. Between 2009 and 2018, the levellised cost
of electricity of solar and wind energy dropped approximately 80 %
and 50 %, respectively.2 Today, these technologies are already cheaper
than building new large-scale coal and gas plants in many major
markets, including India, Germany, Australia, the US and China.
Going forward, investing in the build-out of clean energy plat-
forms in these markets could enable private equity investment
managers to capture the delivery premium available for these pro-
jects. According to recent estimates, the premium ranges from 3 %
to 5 %, depending on the geography and type of renewable genera-
tion asset. In addition, emerging themes that investors should fol-
low closely within the sector include the internationalisation of
offshore wind, energy storage and “direct-to-consumer” renewables.
8 DIRECT INVESTMENTS IN NON-LISTED COMPANIES AND PROJECTS The Entrepreneurial Approach to Supporting the Low-Carbon Economy
Private equity investment managers typically have a strong influence over how assets are developed and managed.
This is particularly true for direct investments, where an active ownership model provides opportunities to work closely with portfolio assets to implement low-carbon initiatives for clean energy and energy efficiency.
CARMELA MONDINOESG & Sustainability, Partners Group
SWISS SUSTAINABLE FINANCE 45Direct Investments in Non-Listed Companies and Projects
Besides the build-out of renewable generation capacity, private
equity investment managers will also need to focus on investments
that tackle the issue of renewable intermittency in order to ensure
greater energy reliability. A range of strategies and technologies will
be required to tackle the intermittency challenge, including battery
storage, additional peaking gas-fired generation, smart meters, and
increased interconnection.
Not all of these sub-sectors are attractive from an investment
standpoint today. For example, the market for energy storage is
gaining significant momentum globally but the technology is still
expensive and not yet widely deployed in large-scale projects. Addi-
tionally, a key commercial challenge for battery storage projects is
developing contract structures and regulatory frameworks that
allow these projects to monetise the multiple sources of value they
provide in an affordable manner. Nonetheless, the cost of these
technologies has decreased rapidly in recent years, similar to the
cost declines witnessed for utility-scale renewables. As such, fur-
ther decreases in the cost of battery storage technologies should
unlock opportunities in the future.
Improving the ESG strategies of portfolio companies While there is a wide range of opportunities for private equity
investment managers to support the low-carbon transition through
direct investments in these new technologies, the governance struc-
ture in private equity also provides the opportunity to optimise the
use of resources across all types of assets in a portfolio.
Compared to public markets, private equity firms generally
have smaller boards for their portfolio companies that meet more
frequently, are more deeply ingrained in the business and work
closely with management to direct companies towards value crea-
tion. This governance framework means that private equity inves-
tors have both the power and the mandate to take the lead on envi-
ronmental, social and governance (ESG) improvements within a
portfolio company.
During the due diligence process, most private market firms
would exclude a company that was found to be materially underper-
forming in its ESG practices. But unlike in public markets, private
market firms often make use of the option to invest in and engage
with companies that are only moderate underperformers, so that
improving these practices becomes a focal point of the value crea-
tion plan. In fact, in private equity, a company’s ESG practices are
typically assessed not only in terms of their potential risk, but also
in terms of their value creation potential.
As part of the value creation process, private equity firms may
establish ESG engagements with their portfolio companies to
improve the measurement and management of material topics that
help support the low-carbon transition, such as initiatives to
improve energy efficiency, waste management and supply chains.
These topics are important for building businesses whose respect
for society and the environment goes hand-in-hand with enhanced
financial performance.
Assessing impactProperly assessing the impact of direct investments that have the
potential to support the transition to a low-carbon economy
requires a suitable impact assessment methodology. For its dedi-
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 46
cated impact investment strategy, Partners Group has identified the
Sustainable Development Goals (SDG) as a useful framework, both
simple enough for a wide range of stakeholders to understand, and
robust enough to inform an investment strategy. Table 6 includes a
list of SDG targets that have a direct link to the low-carbon economy.
Partners Group assesses low-carbon investment opportunities
against the SDG targets listed in Table 6 during due diligence, begin-
ning with a logic model that sequences how each company or asset
creates impact, both positive and negative. Next, each investment is
scored on a five-point scale using our proprietary SDG target rating,
which is based on the Impact Management Project’s five dimen-
sions of impact (see Table 7).3 Finally, relevant impact metrics are
identified based on the logic model created, the Global Reporting
Initiatives’ Business Reporting on the SDGs and the Global Impact
Investing Network’s IRIS metrics.
Once Partners Group has invested in an asset that has been
classified as low carbon, within the first hundred days of ownership
its ESG & Sustainability team presents the portfolio company man-
agement team with the proposed impact goals and metrics, along
with risks identified during due diligence. During this time, the
team works with the management team to agree on impact metrics,
address how to manage risks, and establish systems to collect
impact data.
Table 6 :SDG TARGETS WITH A LINK TO THE LOW-CARBON ECONOMY
Source: Partners Group ; United Nations, April 2020.
SDG SDG TARGET
7.2 By 2030, increase substantially the share of renewable energy in the global energy mix
7.3 By 2030, double the global rate of improvement in energy efficiency
9.4 By 2030, upgrade infrastructure and retrofit industries to make them sustainable, with increased resource-use efficiency and greater adoption of clean and environmentally sound technologies and industrial processes, with all countries taking action in accordance with their respective capabilities
11.2 By 2030, provide access to safe, affordable, accessible and sustainable transport systems for all, improving road safety, notably by expanding public transport
INVESTABLE UNIVERSE
Renewable energy, energy storage
Energy efficiency products or services
Operational excellence services
Transport infrastructure
SWISS SUSTAINABLE FINANCE 47Direct Investments in Non-Listed Companies and Projects
OutlookToday, a wide array of investment themes have the potential to sup-
port the transition to a low-carbon economy, offering investors the
opportunity to support global action on climate change while gen-
erating attractive returns. Private equity investment managers are
particularly well placed to develop these opportunities, using their
entrepreneurial, hands-on approach to asset ownership and apply-
ing internationally recognised frameworks such as the SDGs to
quantify the impact of their investments.
In order to enable the further development of private equity
investment in this area, it is important to have suitable methodolo-
gies to assess and quantify the positive impact of private equity
investment on the low-carbon economy in a standardised and com-
parable manner. Working with best practice impact assessment ini-
tiatives such as the Impact Management Project allows investors to
understand the impact of their investments while helping build
consensus around the requirements investments should meet to be
included in the low-carbon category.
1 Bloomberg New Energy Finance (2018). New Energy Outlook 2018. Available at : https://bnef.turtl.co/story/neo2018/
2 Bloomberg New Energy Finance (2018). New Energy Outlook 2018. Available at : https://bnef.turtl.co/story/neo2018/
3 The Impact Management Project is a forum for building global consensus on how to measure and manage impact, with over 2,000 contributing organisations. https://impactmanagementproject.com/
Table 7 :THE IMPACT MANAGEMENT PROJECT’S FIVE DIMENSIONS
DIMENSION
WHAT ?
WHO ?
HOW MUCH ?
ENTERPRISE CONTRIBUTION
INVESTORCONTRIBUTION
RISK
QUESTIONS EACH IMPACT DIMENSION SEEKS TO ANSWER
What outcome(s) do business activities drive ?How important are these to the people (or planet) experiencing them ?
Who experiences the outcome ? How underserved are the stakeholders in relation to the outcome ?
How much of the outcomes occurs across scale, depth, and duration ?
What is the enterprise’s contribution to what would likely happen anyway ?
What strategies will Partners Group use to contribute to its portfolio’s impact ?
What is the risk to people and planet that impact does not occur as expected ?
Source: IMP Partners Group case study, February 2019
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 48
Clean energy infrastructure fundsThe energy transition (Energiewende) and the Energy Strategy 2050
have shaped Switzerland in recent years. In 2017, the revised Energy
Law was adopted, with one of its aims being to “strengthen the local
renewable energies”.1 Already in 2013, Fontavis, UBS and Mobiliar
launched the country’s first privately financed clean energy infra-
structure fund. The fund invests around CHF 400 million in Swiss
energy infrastructure facilities over a period of several years. The
capital is provided primarily by 36 Swiss pension funds and insur-
ance companies. The investment portfolio includes investments in
13 Swiss companies that produce renewable energy, contribute to
energy efficiency or provide the corresponding infrastructure. The
fund thus not only creates an investment opportunity for institu-
tional investors that did not exist before, but also guarantees the
provision of long-term equity capital to private and public compa-
nies for the construction, operation or renovation of sustainable
infrastructure facilities, energy utilities and waste management
facilities.
Figure 19 on the following page illustrates the portfolio of the
first clean energy infrastructure fund managed by Fontavis.
Heizwerk Gotthard AGOne project financed is the wood heating plant in Göschenen, UR
(Heizwerk Gotthard AG), which produces heat for the village of
Andermatt, army properties in Andermatt and the entire local tour-
ist resort (ASA – Andermatt Swiss Alps).2 In the coming years, the
village of Göschenen and the construction barracks and crew
accommodation for the construction of the second Gotthard road
tunnel will also be heated by the wood heating plant.3 The central
wood heating plant in Göschenen is the heart of the heating net-
work and provides the heat for both Göschenen and Andermatt.4
The grid company Andermatt distributes the energy to the consum-
ers from the distribution centre in Andermatt. The heating plant is
operated with natural wood, sourced mainly from the canton of Uri,
and from the neighbouring northern Ticino. This ensures that the
proportion of grey energy is reduced to a minimum.5
Ecological impact of the heating plantWood is a sustainable energy resource in multiple ways. First and
foremost, every tree releases on average the same amount of CO2
during combustion as it absorbs while growing. The use of wood for
energy generation is therefore carbon neutral.6 In addition, the
wood used for the heating plant in Göschenen comes directly from
the immediate region and is not subject to long-distance road trans-
port. The use of local forests and those in the neighbouring canton
of Ticino increases the respective regional added value, thus reduc-
ing external dependency.7 In addition, good forestry management
is essential for ensuring forest ecosystems.8 With the wood-fired
heating plant and the affiliated heating network, sustainable and
Clean energy infrastructure funds can make a valuable contribution to sustainable energy production in Switzerland by providing long-term equity capital to private and public companies.
Companies use this capital for the construction, opera-tion or renovation of sustainable infrastructure facilities and energy utilities.
8.1 CASE STUDY FINANCING OF INFRASTRUCTURE INVESTMENTS The Example of Heizwerk Gotthard AG
DANIEL ARNOLDHead Swiss Asset Management, Fontavis AG
CHRISTOPH GISLERCFO, Fontavis AG
DOMINIK PFOSTERHead Responsible Investment, Swiss Life Asset Managers
MARTINA TRIULZIExecutive Assistant, Fontavis AG
SWISS SUSTAINABLE FINANCE 49Financing of Infrastructure Investments
reliable energy production can be ensured and dependency on
energy imports from abroad reduced. The 22 GWhth of wood energy
produced replaces almost 6,000 tons of annual CO2 output com-
pared to oil heating systems – which equals ten Zurich – New York
return flights.9
Finance structureInfrastructure assets have a long lifetime and are characterised by a
high capital intensity and high initial investment. For a project such
as the wood-fired heating plant in Göschenen, it takes on average at
least 5–10 years until it reaches a long-term sustainable business
volume, capital can be amortised and accruals can be made for
future replacement investments. The network company is struc-
tured in such a way that the municipality of Andermatt holds the
majority stake and Heizwerk Gotthard AG is a minority shareholder.
In order to be able to supply customers with inexpensive energy and
provide a reasonable return on capital, a hybrid financing structure
was selected. An adequate mix of equity capital and subordinated
loans was determined most efficient in order to allow a certain min-
imum interest rate (immediate cash inflow shortly after commis-
sioning) during the first years. The loans were staggered over time
and will be refinanced gradually after they reach maturity. In the
meantime, the Clean Energy Infrastructure Fund holds a majority
stake of 77.13 percent in Heizwerk Gotthard AG. The remaining stake
is still held by the project developer, which is important to align the
interests of the shareholders and the operator of the plant.
SummaryHeizwerk Gotthard AG is an example of how sustainable energy can
be promoted and financed in Switzerland through a public private
partnership (PPP) involving Swiss pension funds and insurance
companies. Wood-fired heating plants have a particularly good eco-
logical balance sheet. In addition to the fact that the protection for-
ests are maintained and carbon-neutral energy production is guar-
anteed 10, the heating plant also promotes regional value creation,
nearly 50 % of it remains locally.11
Since October 2019, Fontavis is a member of Swiss Life Asset Manag-
ers and supports Swiss Life Asset Managers commitment to respon-
sible investments. Heizwerk Gotthard AG is only one of a total of
over 20 renewable and sustainable investments that Fontavis has
financed as an investment manager of private infrastructure funds,
but it is one of the first of its kind. The lessons and the experience
gained during the process of construction and financing of the
wood heating plant in Göschenen are scalable. This made it possible
for Fontavis to implement similar projects in other municipalities.
Through the projects created, Fontavis contributes to increasing
regional added value and to supplying Swiss municipalities with
sustainable energy.
1 Eidgenössisches Departement für Umwelt, Verkehr, Energie und Kommunikation Website (n.d.). Energiestrategie 2050. Available at : www.uvek.admin.ch/uvek/de/home/energie/energiestrategie-2050.html
2 Heizwerk Gotthard Company Website (n.d.). Das Heizwerk Gotthard. Available at :
www.heizwerk-gotthard.ch/index.php/das-heizwerk-gotthard 3 Ibid. 4 Ibid. 5 Heizwerk Gotthard Company Website (n.d.). Energieholz Netzgesellschaft.
Available at : www.heizwerk-gotthard.ch/index.php/energieholz-netzgesellschaft 6 Ibid. 7 Ibid. 8 Ibid. 9 Myclimate Website (n.d.). CO2 Calculator. Available at : https://co2.myclimate.
org/de/flight_calculators/new 10 Heizwerk Gotthard Company Website (n.d.). Energieholz Netzgesellschaft.
Available at : www.heizwerk-gotthard.ch/index.php/energieholz-netzgesellschaft 11 Heizwerk Gotthard Company Website (n.d). Fernwärme Netzgesellschaft.
Available at : www.heizwerk-gotthard.ch/index.php/fernwaerme-netzgesellschaft
Figure 19 :SOURCES OF ENERGY AND INSTRUMENT TYPES OF THE CLEAN ENERGY INFRASTRUCTURE FUND MANAGED BY FONTAVIS AS PER 31.03.2020
Source : Fontavis, 2020
85 % Equity 15 % Mezzanines
34 % Energy infrastructure 28 % Hydropower 19 % Biomass 12 % Energy efficiency 7 % Other renewable energies
ENERGY SOURCE/TECHNOLOGY INSTRUMENT TYPE
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 50
9 VENTURE CAPITAL INVESTMENTS The Role of Early-Stage Capital for Low-Carbon Solutions
Technological and business-model innovation is key to reduce the
resource- and carbon-intensity of today’s economy. Start-ups play a
vital role in developing and testing such innovative and scalable
solutions under real market conditions. Compared to other innova-
tion processes in corporate or scientific environments, for example,
start-ups can develop and test a multitude of innovative ideas
within very short time horizons, which is absolutely crucial for our
economy to be able to move towards decarbonisation, especially if
the timeline of the Intergovernmental Panel on Climate Change
(IPCC) is to be met (i.e. a carbon-neutral economy by 2050).
It is in the early stages of a business that capital can have the
greatest impact in developing new solutions, because it is allocated
very effectively. On the one hand, it can catalyse successful solu-
tions that tackle the current climate crisis. On the other hand, com-
panies that offer products and services that fail to find demand are
forced to rapidly change course (“ pivot ”) or shut down quickly. Ear-
ly-stage capital is thus crucial for supporting entrepreneurs in their
attempt to disrupt “ business as usual ”. This is of course related to
significant risk, especially when investing in the very early stages,
where funding is often scarce. However, the reward can be high, not
only climate-impact wise, but also financially.
Given the current political and regulatory environment, regu-
lation and taxation on carbon emissions are expected to increase in
the next two decades. This creates a megatrend which makes it
highly likely that investments in start-ups that help to mitigate cli-
mate change and decarbonise our economy will have a high chance
of being profitable, as Figure 20 shows. Based on this premise, this
chapter looks at typical investment phases and respective sources
of financing for such start-ups, opportunities in specific industries,
and shows how early-stage venture capital funds can channel capital
into low-carbon start-ups.
The different phases of investing in start-ups (from seed moneyto venture capital investments) The process for investing in start-ups is usually as follows : A founder
team comes up with a business model idea/ technological innova-
tion and develops an investment case (usually in the form of a pitch
presentation) and a business plan around it. This idea/innovation is
then tested with friends, family and business angels (private inves-
tors that usually contribute between EUR 25k and EUR 100k). There
are numerous start-up competitions founders can participate in (e.g.
Climate KIC 1, which play a vital role in low-carbon innovations in
the European start-up world), in order to approach potential busi-
ness angels and early-stage investors. If interested, potential inves-
tors revise the ventures’ pitch presentation and business plan and
try to assess the feasibility of the business model – important indi-
cations are team, market size, technology (including intellectual
property rights), competition, marketing strategy, a clear path for
further investments and exit options, among others.
If a group of investors is willing to invest, a first finance round
will be structured. The valuation of the start-up is usually in the
so-called seed stage (see Figure 21) between EUR 1 to 5 million, for
Start-ups play a vital role in developing and testing innovative solutions for reducing the resource- and carbon-intensity of today’s economy, and early-stage capital is an important catalyst for such businesses.
As direct investments in early-stage ventures are linked to high risks, bundling such companies into funds makes this asset class investable for institutional asset owners and can channel further capital into low-carbon start-ups.
ALEXANDER LANGGUTHManaging Partner, Übermorgen Ventures
ADRIAN BÜHRERManaging Partner, Übermorgen Ventures
SWISS SUSTAINABLE FINANCE 51Venture Capital Investments
which the investors receive usually between 20 % and 35 % of the
company’s equity. This seed funding should suffice to finance a
start-up’s operation for at least a year. In the seed phase, the start-up
tries to pilot a finished product and start with market testing. Pref-
erably, initial sales are made to show existing and new investors
that there are customers willing to pay for the respective product
or service.
After a successful seed stage, a new financing round takes
place – Series A. Start-ups try to raise between EUR 1 to 10 million at
valuations that can be between EUR 5 to 50 million. After a Series A,
new investors usually are professional venture capitalists, family
offices and ultra high net worth individuals (UHNWIs). The next
phase of a start-up is the so-called Growth Phase – which corre-
sponds to Series B and Series C finance rounds. The biggest chal-
lenges are showing that a certain product or service can be scaled up
in a way that costs can be brought down, and that there is a path to
profitability and/or strong market growth.
After this very critical phase there might be another one or two
finance rounds necessary until the company is in a position to
either pay out a substantial dividend to its shareholders or to find a
path to exit, which preferably would be the sale of its shares to a
potential buyer or through an initial public offering. This is usually
the time when all the existing shareholders cash out and the found-
ers, who also get a fair share of the proceeds, often enter a working
contract for up to three years to ensure a successful handover of the
business to its new owners.
It is important to note that this process carries high risks for
investors and that at best only about 2 to 3 out of 10 start-ups make
it to a successful exit. Usually there is only one or two start-ups in
any given portfolio that really make a high financial impact, return-
EUR
per
ton
of C
O₂-
equi
vale
nt
Figure 20 : COST OF CO2 EMISSIONS
Source : Übermorgen
If the true cost of CO₂ emission were fully taken into account, the global economic system would radically change :
Carbon-intensive products and services (e. g., plastics, ceement, fossil fuets, beef, aviation) will become more expensive, leading to a decline in demand.
Infrastructure investments for carbon-intensive industries need to be written off (e. g., fossil fuel production infrastructure, airports).
Products and services that are carbon-neutral or poor an thus, independent of high carbon prices, become more profitable (e. g., plant-based proteins, e-mobility, renewable energy).
Infrastructure investments enabling climate protection (e. g., renewable ernergy infrastructure incl. energy storage, carbon capture and storage) will become profitable.
Estimated actual average cost of CO₂ emissions *
Mar’18
Feb’18
Apr’18
May’18
Jun’18
Juli’18
Aug’18
Sept’18
Oct’18
Nov’18
Dec’18
Jan’19
The price for carbon * * must increase 8 × to
account for the actual cost of CO₂ emissions
EU-ETS price for CO₂ emissions
EUR 180
EUR 23
* Umweltbundesamt Deutschland
** based on carbon pieces of the EU-ETS Source: Umweltbundesamt Deutschland, Markets Insider
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 52
ing more than 10 ×, sometimes even more than 50 × or 100 × the
invested capital.3 However, the innovation creation process is highly
efficient and the learning curve for the founders and investors, even
in those start-ups that do not succeed, is highly valuable. This knowl-
edge is not lost, but deployed in multiple impactful ways as the
founders and investors move on to other companies and/or projects.
The impact of venture capitalFinding solutions to mitigate climate change requires a broad range
of innovations to transition to increased resource efficiency, more
circular use of resources, the deployment of renewable energy
sources and more sustainable consumer behaviour. Venture capital
investments, unlike other asset classes, channel funds into innova-
tive projects allowing investors to have a high additionality of their
investments – meaning that they are able to directly support inno-
vation processes, which have no easy access to capital otherwise.
For climate change mitigation specifically, several high-im-
pact investment areas exist, including FoodTech and AgriTech (e.g.
advanced biotechnologies, agribusiness marketplaces, farm man-
agement and automation and alternative protein sources), clean
energy and transportation (e.g., renewables in power generation,
distributed energy resources, energy storage, electrification of
transportation or alternative fuels) and sustainable industrial pro-
cesses (e.g., better recycling technologies, carbon capture for pro-
duction and process emissions, alternative materials for plastics or
construction materials, for example).
A successful start-up contributing to a low-carbon economy
always delivers a double impact : it creates value for society by pro-
viding a marketable product or service (hence creating financial
returns) while also reducing greenhouse gas emissions. A good
example is Beyond Meat, which started as a classical start-up, exited
through an IPO and has since increased its value fivefold. It delivers
a product that replaces classical meat-based hamburger patties with
a plant-based alternative, saving thousands of tonnes of CO2. It is
profit-oriented ventures like these that offer our best chance for the
transition of our planet to a low-carbon economy.
Early-stage venture capital fundsAs discussed, investment in early-stage start-ups can be very risky
and should only be made by professionals with experience in this
particular financing space. However, the innovative role that start-
ups can and must play in solving climate change and decarbonising
our planet cannot be underestimated. Therefore, more instruments
are needed to funnel money into the very early stages of start-ups.
Early-stage VC funds are a way to diversify risks and make
this investment class accessible for institutional investors such
as pension funds and foundations, as well as governments. A num-
ber of climate impact oriented VC funds in Europe are listed in
Figure 21 :VENTURE CAPITAL INVESTMENT STAGES
Concept/Research
Businessplanning
Productdevelopment
First commercialdeals
Fully operational
Expansion Ready for IPO
Amount of money
Stage of startups
Seed stage
Angelsinvestors
Early Stage
Series A
Series B
Series C
Source: Start-up Freak, 2013 2
SWISS SUSTAINABLE FINANCE 53Venture Capital Investments
Figure 22. They reduce risks by investing in 20 to 50 start-ups and
therefore help diversify the risk of early-stage investing across the
investment portfolio. Also, such funds usually have specific exper-
tise when it comes to dealing with the specific challenges facing
those very early-stage start-ups. These challenges often are not
related to the actual product or service itself, but to more funda-
mental aspects, such as finding the right co-founder, developing
effective marketing strategies, choosing the right IT framework,
focusing on the most promising business opportunities, navigating
through the legal challenges, finding the right investors and gener-
ally just raising enough money to continue operations.
Successful early-stage venture capital funds usually have a
strong entrepreneurial mindset and a hands-on approach. They are
also well connected and can make valuable introductions for the
founders to other start-ups, potential investors, future clients and
corporations. Rather than just making an investment decision and
watching the progress of a company, early-stage investors should be
willing to contribute more than just cash, but also experience, net-
work, time and resources.
A big challenge for investors is properly assessing early-stage
start-ups and guiding them through the oftentimes messy first years,
when most are likely to fail. Many UHNWIs, family offices and foun-
dations that might be very skilled at growth-stage financing, fre-
quently fail in the early stages of venture financing as they underes-
timate the amount of time and dedication that is needed to help
start-ups through the first vital phase of their existence. However,
with the global rise of early-stage venture capitalists, there is an effec-
tive and proven model for channelling money to early-stage start-ups
while diversifying risks and generating positive financial returns.
This expertise is encapsulated in early-stage venture capital funds.
ConclusionTo conclude, VC investing plays an important role in fostering inno-
vative solutions for a low-carbon economy, developed and tested by
start-ups. However, direct investments in such early-stage ventures
are linked to high risks. Therefore, bundling such companies into
early-stage venture funds makes this asset class investable for insti-
tutional asset owners and offers the opportunity to channel addi-
tional funding into such innovative start-ups. Additional funding
to early-stage start-ups active in decarbonisation is not only sorely
needed to develop innovative solutions towards a low carbon econ-
omy – it also presents a very profitable investment opportunity.
1 See : www.climate-kic.org/
2 Startup freak (31 July 2013). What does Series-A, Series-B and Series-C funding mean in Startups. Available at : https://startupfreak.com/what-does-series-a-se-ries-b-series-c-funding-mean-in-startups/
3 Henry, P. (18 Feb. 2017). Why Some Startups Succeed (and Why Most Fail). Entrepreneur. Available at : www.entrepreneur.com/article/288769
Figure 22 :EXAMPLES OF CLIMATE IMPACT ORIENTED VENTURE CAPITAL FUNDS IN EUROPE
Pre-seed Seed A round B round Other
Funds
Country
Double impact committed
Direct relevance for climate
Indirect relevance for climate
EARLY LATE
FINANCING ROUND FOCUS SECTOR FOCUS
Renewable energy / energy efficiency / decentralized power generation
Agriculture / food
Materials/resource efficiency
Industry 4.0
Information/communication tech
Smart city
Water
Life science
GBR
GER
GER
GER
GER
GBR
CH
CH
FRA
NED
GBR | FIN
Source : Übermorgen
ETF Partners
EnBW New Ventures
eCAPITAL Entrepre-neurial Partners AGMunich Venture Partners
EcoMachines Ventures
VNT Management
Emerald Technology Ventures
Loudspring
High-Tech Gründerfonds
Übermorgen Ventures
Demeter Partners
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 54
Deployment of renewable energy is pivotal to achieving a 2°C com-
pliant economy, with the global share of renewables expected to be
over 60 % by 2050.1 A significant portion of energy will be generated
and stored on-site by end consumers, through local installations
such as rooftop solar or large-scale industrial installations, referred
to as Distributed Energy Resources (DER).2 Coupled with energy
storage and IT solution systems, DERs are disrupting the energy
value chain and challenging the traditional utility business models.
Many start-ups focusing on solutions for optimising energy
resources are emerging, creating investment opportunities for ven-
ture capital firms and traditional investors with exposure to energy,
clean-tech and utility stocks.
A challenge linked to renewable energy is that it is often less
predictable and intermittent in supply due to dependency on
weather conditions. This has raised concerns over the effects renew-
able energy has on the overall stability of the grid. In addition, man-
aging distributed renewable energy generation, as opposed to tradi-
tional centrally planned power plants, requires significantly more
coordination of information and energy flows. To address this,
innovative business models such as Virtual Power Plants (VPP) have
emerged, which harness the power of information technology to
virtually aggregate a diverse set of distributed energy assets into a
platform. By operating the energy assets as a unified resource, the
VPP addresses some of the challenges mentioned.
A VPP can contain almost any power generating technology,
including biogas, biomass, combined heat and power 3 (CHP), wind,
solar or hydro. It also incorporates storage solutions as well as
demand response programmes 4. The centrepiece of a VPP platform
is the control centre which digitally connects, operates and man-
ages thousands of individual assets spread geographically, as if they
were a single power plant (Figure 23). The assets are coordinated and
optimised through algorithms that consider a variety of technical
and market signals such as weather forecasts, price signals and tech-
nical requirements, allowing the operator to efficiently participate
in the energy market.
The application of VPPs can bring about many benefits. Firstly,
intermittent power generation from renewables can be combined
with more flexible generation capacities such as biomass or CHP to
generate power with much greater predictability compared to
renewables in a stand-alone scenario. VPPs can also participate in
the balancing markets to provide short-term flexibility to the grid
operator. This makes VPPs a powerful tool with the potential to
transform variable renewable energy into a predictable and flexible
energy resource.
Furthermore, integration of VPP platforms also brings value to
utilities whose business model is being challenged by independent
distributed energy producers. Utilities face shrinking profit mar-
gins as consumers shift from being traditional consumers to also
producing energy for self-consumption. In fact, according to a sur-
vey done by Accenture in 2017, almost 60 % of utility executives
ranked distributed generation as the biggest disrupter to their busi-
The significant increase of renewable energy sources in the global energy mix, coupled with information technologies, is disrupting the energy value chain and bringing about investment opportunities in clean-tech start-ups and smart utility business models.
One such model is a Virtual Power Plant (VPP), which harnesses the power of information technology to virtually aggregate a diverse set of distributed renew-able energy assets into a platform, operating them as a unified resource.
9.1 CASE STUDY VIRTUAL POWER PLANTS Delivering Flexible Renewable Energy to the Grid
QENDRESA RUGOVAManaging Director, Enfinit Sàrl
SWISS SUSTAINABLE FINANCE 55Virtual Power Plants
ness.5 Utilities are thus facing the need to reinvent themselves
through digitalisation and shift their value from asset ownership to
service-based business models. VPPs allow utilities to incorporate
distributed energy resources in their value chain and expand their
service offering to managing such assets and optimising resources.
It is therefore not surprising that energy companies are making sig-
nificant investments in digital transformation, with Bloomberg
NEF estimating that USD 590 billion will be invested between 2017
and 2025.6
The VPP market is driven mainly by utilities, storage technol-
ogy developers, energy service companies or municipalities aiming
to capture some part of the value of the supply chain. Optimisation
platforms are developed by technology companies such as Next-
Kraftwerk, Virtual Power Solutions, AutoGrid or Enbala, who often
operate their own VPPs or offer their products through SaaS 7 agree-
ments. In Switzerland, Virtual Global Systems has developed an
optimisation system with VPP capabilities. Many utilities or energy
service companies apply these technologies to their portfolios. The
Norwegian utility Statkraft operates a portfolio of 12GW in Germany
and plans to add another 2 GW in the UK.8 Japan also aims to aggre-
gate 10,000 distributed energy assets into a VPP. Finally, Tesla
launched a 50,000-home virtual power plant in Australia last year.9
Transitioning to a low-carbon economy requires a digital trans-
formation of the energy sector so that it can accommodate a high
share of distributed energy resources, storage facilities, electric vehi-
cles and demand response programs, while maintaining security of
supply. Advanced technologies like VPPs thus bring forth numerous
opportunities for investors seeking innovation to deliver on sustain-
ability-related goals. Venture capital firms and thematic funds have
the opportunity to support clean-tech start-ups that are developing
innovative platforms focused on digitalisation of energy systems.
The Swiss investment firm SUSI Partners, for example, announced in
late 2019 that it plans to invest $50 million in a residential solar-
plus-battery storage VPP project in Australia. More traditional inves-
tors with exposure to energy and utility stocks can support this
transformation through positive screening of utilities that have
embraced such disrupting solutions in their business model.
1 Bloomberg NEF (n.d.). New Energy Outlook 2019. Available at : https://about.bnef.com/new-energy-outlook/
2 Ibid.
3 Combined heat and power (CHP) is a system in which steam produced in a power station as a by-product of electricity generation is used to heat nearby buildings.
4 Demand response programmes aim to reward end consumers for lowering their consumption at peak times.
5 ABB (2017). White Paper Virtual Power Plants. Distributed generation is not a threat, it’s an opportunity. https://search.abb.com/library/Download.aspx?Docu-mentID=8VZZ000328T0000&LanguageCode=en&DocumentPartId=&Ac-tion=Launch
6 Bell Ventures (n.d.) Power to the People. How digital is disrupting the energy industry – Top 4 Trends. Available at : https://bell.ventures/insights/power-to-the-people-top-4-trends-disrupting-the-energy-industry
7 Software as a Service (SaaS)
8 Deign, Jason (21 March 2019). Statkraft Looks to Virtual Power Plants as Renewable Energy Demand Surges. Greentech Media. Available at : www.greentechmedia.com/articles/read/statkraft-looks-to-virtual-pow-er-plants-as-renewable-energy-surges#gs.tp96n9
9 Smart Energy International (25 June 2019). Japan developing world’s largest behind-the-meter VPp. Available at : www.smart-energy.com/industry-sectors/business-finance-regulation/japan-developing-worlds-largest-behind-the-me-ter-der-system/
Source : ABB, 2014
Figure 23 :VIRTUAL POWER PLANTS
Wind farm
Wind farm Biomass power plant Hydropower plant
Solar power plant
Power grid
Control center
Demandforecast
Productionforecast
Power priceforecast
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 56
Energy efficiency and the low-carbon economyEnergy efficiency (EE) is an essential element of the low-carbon
economy. It is a highly effective and economic way to reduce global
greenhouse gas (GHG) emissions. The International Energy Agency
(IEA) demonstrated that energy efficiency measures could deliver
more than 40 % of the GHG emissions abatement required to reach
the Paris Agreement goals in an Efficient World Scenario.1 Improve-
ment in energy efficiency results in using less energy for the same
output or producing more with the same energy input, thus increas-
ing productivity and competitiveness. Besides that, energy effi-
ciency also reduces air pollution, lowers spending on energy,
enhances energy security and provides many other socio-economic
and environmental benefits.
The relevance of energy efficiency is growing as global energy
demand increases, particularly in developing economies. Accord-
ing to the IEA, by 2040 the world will be home to 20 % more people,
will contain 60 % more building space and will have twice the cur-
rent gross domestic product (GDP). With this growth, global energy
demand is expected to increase, resulting in a huge need, but also a
huge opportunity for energy efficiency gains. However, invest-
ments in energy efficiency are not currently happening at the rate
needed, hindered by barriers such as high upfront costs, lack of
access to finance, high perceived risk, lack of trust in new technolo-
gies, competing investment priorities, lack of knowledge and
awareness, and split incentives.
Many of these barriers can be overcome, at least in significant
part, with well-designed financing mechanisms such as the Energy
Savings Insurance model. Together with complementary measures
such as policies, regulations, awareness-raising activities and
behaviour-changing initiatives, financing mechanisms and busi-
ness models for energy efficiency have a sustained long-term
impact, as demonstrated below.
The Energy Savings Insurance ModelThe Energy Savings Insurance (ESI) model is typically designed to
drive investments from small and medium-sized enterprises (SMEs)
in efficient technologies. In Europe, enterprises employing fewer
than 250 persons represent 99 % of all enterprises and therefore
present a significant market opportunity for EE improvements, e.g.
solar water heaters and photovoltaic systems, electric motors or air
compressors. Energy use constitutes a substantial proportion of
production costs for many SMEs, particularly in energy-intensive
sectors that rely on heating or cooling for their processes or the pro-
vision of their services. However, within SMEs decision-makers are
comparatively price sensitive and tend to have limited financial
resources or access to credit. Decision-makers in SMEs display a dis-
proportionally high risk perception of investments in energy effi-
10 INSURANCE SOLUTIONS Energy Savings Insurance Removing Barriers to Energy Efficiency Projects
High upfront costs, perceived risks and lack of access to finance often hinder investments in energy efficiency, especially among SMEs.
In order to increase investments in energy efficiency, the Energy Savings Insurance (ESI) model has been developed to reduce the risks, by offering a policy to cover clients in case the energy savings guaranteed by the technology provider are not delivered.
The model has been developed in Latin America and is currently under implementation in Europe.
LIVIA MIETHKE MORAISSustainable Energy Finance Specialist, Stiftung BASE(Basel Agency for Sustainable Energies)
DANIEL MAGALLÓNManaging Director, Stiftung BASE (Basel Agency for Sustainable Energies)
SWISS SUSTAINABLE FINANCE 57Insurance Solutions
ciency compared with the expected returns and competing invest-
ment opportunities. Therefore, despite the large potential for EE
improvements in SMEs, this opportunity remains largely untapped.
How does it work ?The ESI is a financing model that includes a risk coverage product
insuring against a technology provider failing to deliver the con-
tracted energy savings. It consists of different elements that aim to
drive demand and motivate SMEs to invest in EE, by reducing the
perceived risks (as illustrated in Figure 24) and creating trust between
key actors (e.g. technology providers, enterprises, financial institu-
tions). Setting up a typical ESI (see Figure 25) involves four phases.
Phase 1: Preparation: An energy-efficient technology provider
offers a project, with the promised energy savings guaranteed.
The ESI elements are contained in the simple, standardised
contract that is signed between the technology provider and
client. This contract offers a clear and transparent framework
for negotiations between key actors (SMEs and technology
providers) on how a project’s energy savings are guaranteed.
It is based on a standardised turnkey contract, which includes
a guaranteed savings clause, and distributes the remaining
risk to appropriate actors, namely the independent technical
validation entity and the insurance company.
Phase 2: Contract activation: An independent technical vali-
dation process is integrated into the model, to overcome the
perceived high performance risk of EE projects. This is done by
an independent validation entity, which evaluates the capacity
of the project to deliver promised energy savings, verifies the
installation, and acts as an arbitrator at the savings monitoring
stage, if required.
The insurance company issues the insurance for the validated
savings. This is usually a surety insurance, which forms part of
the guarantees offered by the technology provider to the SME
in the contract. After the validation of the project and issuance
of the insurance, the contract is activated. Investments in EE
projects with guaranteed savings can support access to a green
loan, if required. It is also possible to link existing financial
instruments (e.g. credit guarantees for SMEs or “green lines”)
to enable EE projects using ESI.
Phase 3: Installation and operation: The technology pro-
vider installs the new energy-efficient equipment and the val-
idation entity verifies that the installation is in accordance
with the contract. The operation of the new equipment results
in reduced electricity costs, improved performance, and higher
productivity and sustainability. Maintenance services by the
technology provider ensure that the equipment is operating
optimally, delivering the savings.
Phase 4: Savings monitoring: The energy savings are meas-
ured and periodically reported by the technology provider and
the client can check and approve them. If there are disagree-
ments on the savings achieved, the validation entity steps in
and acts as an arbiter. If the savings are not achieved and the
technology provider is not able to respond, the insurance steps
in to cover the promised savings.
Figure 24:RISK PERCEPTION OF EE INVESTMENTS BY DECISION-MAKERS IN SMES
Source: Stiftung BASE, 2020
Reduction of the risk perception of energy efficiency (EE) investments with the ESI model
Expe
cted
Retu
rn
Riskperception
Stock market
EE investments
Investment in enterprise core business
Savings account
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 58
What are the benefits of the ESI model ? Technology Providers: The ESI model helps quality energy-ef-
ficient technology providers gain the trust of clients and sell
more energy-efficient products. High-quality technology typi-
cally competes with cheaper products, therefore the challenge
lies in convincing clients to invest more upfront capital in
higher quality equipment for future cost savings. Hence the
guaranteed savings covered by insurance added to the provid-
ers’ offer presents a new business opportunity.
SMEs: Beyond the general benefits from investing in EE, such
as increased competitiveness and improved environmental
sustainability, the ESI model creates trust and is presented as a
comprehensive package with independent technical valida-
tion and insurance coverage of the guaranteed savings and
facilitated access to financing. When contracting an EE project
built on the ESI model, SMEs can also benefit from competitive
credit conditions, favourable loan tenors, and support in
accessing collateral.
Banks and financial institutions: Financial institutions ben-
efit from the ESI mechanism because it reduces the credit risk
of their borrower due to the guaranteed savings covered by
insurance. The business opportunity for banks in the ESI
model is the increase in the demand for financing, allowing
them to mobilise “green” financial products (or create new
green products) to support these projects. The independent
technical validation and insurance coverage for the guaran-
teed energy savings can also result in better tenor and loan
conditions, due to the reduced risk of the project failing and
the client being unable to repay the loan.
ESI in practice: Examples from Latin America and EuropeThe Energy Savings Insurance model has been developed and imple-
mented by the Inter-American Development Bank (IDB) 3, with the
support of BASE.4 ESI was recognised by the Global Innovation Lab
for Climate Finance as one of the most promising instruments to
mobilise private sector investments in EE.5 ESI also features in the
G20 EE Investment Toolkit.6
Figure 25:ESI FINANCING STRUCTURE
Source: Stiftung BASE and ESI Europe 2
Financial flow
Financial flow, if existing instrument available in the country
Incentives (if applicable)
Project installation
Energy savings
Projectpayment
Green loan
Project performance risk coverage
Credit guarantee (if applicable)
Insurance TechnologyProvider
Client
Financial Institution
Energyefficiency project
SWISS SUSTAINABLE FINANCE 59Insurance Solutions
At the moment, there are on-going projects in several countries. In
Colombia and Mexico alone, the model is expected to mobilise over
USD 45 mn in SME investments in EE technologies, while in Europe
the figure is around EUR 60 mn in Portugal, Italy and Spain. The ESI
model is currently being developed and implemented in Argentina,
El Salvador, Chile, Brazil, Nicaragua, Paraguay, and Peru by the IDB
and supporting partners. In Europe, the ESI model is being devel-
oped by BASE with funding from the European Commission’s Hori-
zon 2020 Research and Innovation Programme.7
Despite being an additional cost to SMEs, the insurance and
validation process of the ESI model is designed to be standardised
and does not have a significant impact on the return of investment
in EE projects, projects that would otherwise not be invested in due
to the high perceived risks (see Figure 24). In the ESI model imple-
mentation in Latin America and Europe, those additional costs vary
from 2 % to 5 % of EE project investments, which are typically in the
range of USD 100,000 or above. Technologies for which the ESI
model has been adapted include solar water heaters, air condition-
ing, electric motors, air compressors, co-generation, boilers, refrig-
eration, and solar photovoltaic systems.
A pipeline of EE projects in Italy, Portugal and Spain is under-
way to operationalise the ESI model under the Horizon 2020 funded
project, ESI Europe.8 To further build trust, the ESI implementation
also relies on a management information system using blockchain
technology, guaranteeing traceability and reliability of EE projects.
The project also involves dissemination efforts to promote the
model more broadly across Europe and the development of
long-lasting training tools, such as the “ESI Europe toolkit” and
short videos to enable the roll-out of the model in other interested
countries and sectors.
Challenges and opportunitiesThe implementation of the ESI model requires initial funding for
the development of the programme. Development agencies, govern-
ments, or private actors can provide the required funding. Beyond
funding, other components are necessary, such as engagement of
key actors, proper identification of key sectors with EE investment
potential and initial targeted marketing campaigns. Adequate sup-
port throughout the implementation, e.g. capacity-building for key
market stakeholders, communication and marketing activities, and
support to build initial pipelines of EE projects, is thus crucial.
The ESI model is an existing market-based solution that ena-
bles resources to be leveraged from multilateral development or
governmental agencies, mobilising demand and stimulating private
investments in EE. For the future development of ESI projects, a big
advantage is that the ESI model is compatible with other EE instru-
ments and can be supported by existing credit guarantees for SMEs,
commercial green credit lines or on-bill financing schemes. In the
long run, the model will be taken up by the market and is expected
to be self-sustaining. The ESI model thus represents an effective way
to increase investments in EE urgently needed to deliver the Paris
Agreement goals and achieve a low-carbon economy, and offers
different stakeholders a new tool for action.
1 International Energy Agency (2018). Energy Efficiency 2018- Analysis and outlooks to 2040. Mark. Rep. Ser. 1–143 (2018). doi:10.1007/978-3-642-41126-7
2 The ESI model drives investment in energy efficiency through energy savings insurance in Europe. See : https://www.esi-europe.org/financing/
3 Inter-American Development Bank. Latin American and Caribbean Green Financing (n.d.). Energy Savings Insurance Program. Available at : https://www.greenfinancelac.org/our-initiatives/esi/
4 Basel Agency for Sustainable Energy
5 Global Innovation Lab for Climate Finance (n.d.). Energy Savings Insurance. The Lab : Driving Sustainable Investment. Available at : https://www.climatefinancelab.org/project/insurance-for-energy-savings/
6 G20 Energy Efficiency Finance Task Group (2017). G20 Energy Efficiency Investment Toolkit. Available at : https://www.unepfi.org/wordpress/wp-content/uploads/2017/05/G20-EE-Toolkit.pdf
7 European Commission – Horizon 2020 (n.d.). Project Information ESI Europe. Available at : https://cordis.europa.eu/project/id/785061
8 ESI Europe (n.d.) Project Page. Available at : https://www.esi-europe.org/
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 60
Energy efficiency is an integral part of global energy policy as it is
widely recognised as a cost-efficient means of reducing energy
demand, thereby curbing greenhouse gas emissions. The Interna-
tional Energy Agency (IEA) estimates that energy efficiency could
provide more than 40 % of the abatement required by 2040 under
the Paris Agreement.1 However, despite the clear environmental and
economic case for energy efficiency, current annual investment vol-
umes are significantly below policy targets. This chapter provides
an overview of the trends in energy efficiency investments and pre-
sents Energy Performance Contracting (EPC) as a tested and mature
model for channelling investments into energy efficiency.
Energy efficiency investment trends Energy efficiency has the potential to play an important role in
achieving global climate targets. However, global investments in
energy efficiency in 2018 only equalled USD 240 billion, a marginal
3 % growth on the year before.2 The current level of capital deploy-
ment is well below the required level to deliver on climate com-
mitments. According to IEA’s estimates, annual investments
should run at USD 584 billion per year between 2017 and 2025,
more than double today’s level, and will further increase to USD 1.3
trillion per year up to 2040. This investment gap is depicted in
Figure 26 on the following page.
The sluggish progress is mostly due to investment barriers that
are unique to energy efficiency, such as the diverse nature of invest-
ment measures both in terms of technology as well as sector (build-
ing, transportation, industry), high up-front costs, long pay-back
periods and small scale of individual investments, among others.
Such barriers result in low demand for developing projects and
consequently weak supply of financing, with the former being the
key driver of the process. Delivering the necessary scale of invest-
ments requires a favourable policy that incentivises efforts to
develop projects and generates the necessary pipeline, as well
as innovative business models that address specific financing
challenges particular to energy efficiency.
Delivering scale through Energy Performance ContractingOne business model that is relatively mature and has proven to be
successful in addressing such challenges is Energy Performance
Contracting (EPC), which is essentially a contractual agreement
between an Energy Service Company (ESCO), a third party that is
specialised in delivering energy savings solutions, and the end user.
This model allows a third party such as an ESCO to undertake the
implementation of energy efficiency measures on behalf of the
end user through an EPC, which often provides a guaranteed level
of energy savings to the end user and furthermore allows for the
sharing of additional savings between both parties. As such, the
remuneration of the ESCO is tied to the energy savings achieved.
11 ENERGY PERFORMANCE CONTRACTING Scaling Energy Efficiency Investments through Tested Financing Models
Energy efficiency investments face unique barriers, such as high up-front costs, long pay-back periods and small scale of individual investments, all of which contribute to the investment gap needed to reach the climate goals set in the Paris Agreement.
Energy Performance Contracting (EPC) carries the potential to address some of these financing barriers by aggregating investments into portfolios to achieve the required scale.
Receivables from EPCs are sometimes sold to institu-tional investors who appreciate their alignment with their long-term liabilities.
QENDRESA RUGOVAManaging Director, Enfinit Sàrl
SWISS SUSTAINABLE FINANCE 61Energy Performance Contracting
Figure 26 :ENERGY EFFICIENCY INVESTMENTS IN 2018 AND REQUIRED INVESTMENTS UP TO 2040
Source : IEA (2018), Author’s analysis
1400
1200
1000
800
600
400
200
02019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040
USD billion
Required annual investments in energy efficiency to reach the Efficient World Scenario (EWS)
Total cumulative investment by 2040 of ~ USD 25 trillion
Current level of investments USD 240 billion in 2018
Cumulative level of investment by 2040 (assuming current level of investments) of ~ USD 7 trillion
Figure 27 :ESCO MODELS WITH ENERGY PERFORMANCE CONTRACTING
Source : Renovation Hub (2019) 3
Ener
gy &
Ope
rati
onal
cos
ts
Start of positive impact on energy consumption
Duration of program
Contract expiresCustomer retains all savings
Time (years)
Savings used to pay ESCO for:– Implementation of EE measures– Operation & maintenance– Prefinancing of investment– Taking over the risks Operation &
maintenance cost
New, reduced costs with performance contracting
Additional cost avoidance due to energy price increase
Customer savings
Base
line
(Pre
viou
s co
sts)
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 62
Figure 27 depicts an example of how an EPC structure delivers value
to the consumer through the savings generated during the duration
of the project after the implementation of concrete energy effi-
ciency measures, such as a public lighting project or the retrofitting
of commercial real estate assets. The end user enjoys full benefits of
savings after the project is completed.
ESCOs may or may not provide for the financing of the up-front
costs. A distinction is often made between two types of EPC con-
tracts with ESCOs : “financing Energy Performance Contracts” and
“operational Energy Performance Contracts”.4 A schematic overview
of the two options is presented in Figure 28. The key difference
between the two lies in the arrangement of financing.
In operational EPCs, the end user is the borrower and the
financing agreement is established between the user and the lend-
ing institution, on the basis of the EPC between the user and the
ESCO, which guarantees a sufficient level of energy savings to ser-
vice the debt. In this case, the ESCO’s role is more operational, which
mitigates technical risks, and acts as a savings guarantor.5
In financing EPCs, ESCOs initiate the project, arrange third-
party financing, implement the efficiency measures and monitor
the project. For large projects, such a centralised role is extremely
beneficial as the ESCO serves as the main counterparty for the finan-
ciers as well as the beneficiaries.6 In such cases, ESCOs enter into
debt agreements with a lending institution, again based upon the
EPC signed between the end user and the ESCO. However, debt ser-
vicing obligations fall to the ESCO and not the end user.7
The EPC model addresses some of the challenges associated
with energy efficiency investments. Firstly, one EPC contract typi-
cally aggregates a portfolio of projects which are ideally structured
jointly and ready to be financed. Financiers (debt or equity) are
accustomed to financing large projects. High transaction costs do
not always make it worthwhile for investors to focus on individual
small-scale projects. In most cases, aggregation is therefore neces-
sary to reach critical mass for the projects to become attractive from
a financing point of view.
Furthermore, ESCOs are equipped with the technical know-how
needed to assess and implement energy efficiency measures. This is
particularly important for energy efficiency investments, as due to
their cost-saving nature (as opposed to cash-flow generation), each
project needs to establish base-line measurements on current con-
sumption levels on which basis future savings are calculated.8 As
such, measurement, reporting and verification (MRV) as well as
quality assurance processes are required continually throughout
the investment period to document the savings generated and
essentially create associated investment returns.
In addition, implementation of energy efficiency measures
requires significant up-front capital, which may not always be avail-
able to end users. EPC structures can address this challenge, since an
ESCO can attract third-party financing, which allows end users to
participate in such programmes without the need to deploy signifi-
cant up-front capital. To date most efficiency projects are delivered
through means of self-financing. However, delivering the ambitious
climate targets requires mobilisation of third-party capital at scale,
which can be achieved through use of financing models such as EPCs.
ESCOs typically finance energy efficiency projects with their
own capital and on-balance-sheet debt. This often limits their abil-
ity to undertake more projects due to debt ratio restrictions. In order
for ESCOs to implement more projects, they often sell receivables
from EPCs to secondary buyers and thereby free up their balance
sheets. EPC portfolios are typically sold to institutional investors or
thematic funds who find such investments to be in line with their
investment criteria. Receivables from implemented energy effi-
ciency projects are de-risked in terms of technical implementation
and also have an established operational track record that demon-
strates concrete achieved savings. Furthermore, EPCs are consid-
ered to be low-risk, long-term assets with stable returns, thereby
matching institutional investors’ long-term liabilities. SUSI Part-
ners, for example, a Zurich-based infrastructure fund manager, has
a dedicated energy efficiency fund which collaborates with ESCOs
on such off-balance sheet investment structures.
Figure 28 :ESCO MODELS WITH OPERATIONAL AND FINANCING EPC
Source : European Commission, Joint Research Center (2015)
Debtservice
Debtservice
PaymentPayment
ServiceService
Debtfinancing
Debtfinancing
A) Operational EPC with the user as a borrower B) Financing EPC with ESCO as a borrower
Lendinginstitution
Lendinginstitution
Financing agreement
Financing agreement
Energy userEnergy user
EPCEPC
ESCOESCO
SWISS SUSTAINABLE FINANCE 63Energy Performance Contracting
ESCO market in Europe and SwitzerlandAccording to an IEA report, the European ESCO market was esti-
mated to be EUR 3 billion in 2017 representing about 10 % of the
global ESCO market with China and the United States leading the
way.9 The level of market development is influenced by opportuni-
ties in energy savings from energy efficiency in various geographies,
as well as enabling policies that support such investments. Within
the EU, Germany is considered to be the most mature market, along
with France, Austria, the UK and the Czech Republic.10 In Switzer-
land, the ESCO market is relatively new compared to its neighbour-
ing countries. The development of the market in Switzerland is
championed by swissesco, an association founded in 2015 by indus-
try leaders with the aim of promoting the application of EPC con-
tracting within Switzerland.11
To date, there have been about 20 EPC projects implemented in
Switzerland, most of which are based in the French-speaking region
of the country. One example worth mentioning is the energy effi-
ciency investment at the Hôpital Universitaire de Genève (HUG) for
which an EPC contract was signed between HUG and Services Indus-
triels de Genève (SIG). The latter is acting as the ESCO and invests
over CHF 1.2 million in efficient lighting. Energy savings during the
duration of the contract are shared between the two parties. Accord-
ing to swissesco, one of the biggest challenges in Switzerland with
regards to the further development of the EPC market is lack of
awareness about the business model and the benefits it delivers to
stakeholders. As such, it is imperative that more efforts are made to
raise awareness in the country and communicate the contribution
it makes towards achieving Swiss policy targets.
ConclusionEPCs carry the potential to address some of the existing financing
barriers in energy efficiency by aggregating investments into port-
folios to achieve the required scale. EPCs also enable third-party
financing, which can act as a catalyst to drive investment levels in
energy efficiency closer to the climate targets set by the Paris Agree-
ment. Institutional investors can get involved by purchasing receiv-
ables, which would allow ESCOs to undertake more energy effi-
ciency projects. Policymakers, in conjunction with other
stakeholders such as the financing community and project develop-
ers, should ensure that favourable policies are put in place to enable
the development and financing of energy efficiency projects.
1 International Energy Agency. (2018). Energy Efficiency 2018, Analysis and outlooks to 2040. IEA : Paris
2 International Energy Agency. (2019). World Energy Investment, 2019. IEA : Paris
3 Laffont-Eloire, Karine. (2 October 2019). Energy Performance Contracting (EPC). Renovation Hub EU. Available at : https://renovation-hub.eu/business-models/energy-performance-contracting-epc/
4 Energy Efficiency Financial Institutions Group (EEFIG). (2014). How to drive new finance for energy efficiency investments – Part 1 : Buildings (Interim Report). Available at : www.unepfi.org/fileadmin/documents/EnergyEfficiencyInvest-ment.pdf
5 European Energy Efficiency Platform (E3P). (n.d.). Energy Performance Contract-ing. Available at : https://e3p.jrc.ec.europa.eu/articles/energy-performance-con-tracting
6 Wilson Sonsini Goodrich & Rosati. (May 2012). Innovations and Opportunities in Energy Efficiency Finance. Available at : www.wsgr.com/publications/PDFSearch/WSGR-EE-Finance-White-Paper-14.pdf
7 European Energy Efficiency Platform (E3P). (n.d.). ESCo Financing Options. Available at : https://e3p.jrc.ec.europa.eu/articles/esco-financing-options
8 International Energy Agency. (2014). World Energy Investment Outlook 2014. IEA : Paris.
9 International Energy Agency. (2018). Energy Service Companies (ESCOs). At the heart of innovative financing models for efficiency. Available at : www.iea.org/reports/energy-service-companies-escos-2
10 Boza-Kiss, B., Bertoldi, P. & Economido, M.. (2017). Energy Service Companies in the EU. Status review and recommendations for further market development with a focus on Energy Performance Contracting. Available at : https://publications.jrc.ec.europa.eu/repository/bitstream/JRC106624/kjna28716enn.pdf
11 See www.swissesco.ch for more information on the association
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 64
Introduction For the purpose of this chapter, we define community finance
broadly as a participation scheme that allows individuals, i.e. small-
scale retail investors, to invest in renewable energy (RE) projects and
receive compensation in the form of electricity, certificates of origin
and/or interest payments. Compared to other countries, such as the
US, community-financed energy projects are still relatively uncom-
mon in Switzerland, but their number is increasing every year.1
Overview of existing forms for community finance in renewable energy At present, there are various ownership models for renewable ener-
gies which open up a variety of different opportunities for private
investors. The most basic form of consumer ownership is direct
ownership of a generating facility. Despite being the most wide-
spread form of RE ownership, it has the disadvantage of making
co-ownership dependent on the available infrastructure, e.g. the
availability of an appropriate rooftop for a solar power installation,
which excludes a large portion of the population, such as tenants,
from RE co-ownership.
Another form of co-ownership is the indirect ownership
model, which allows electricity customers to participate financially
in a renewable energy project. In Switzerland, cooperatives are
already well-established vehicles for consumer (co-)ownership
both at the national and regional levels (cooperative model).2 | 3 | 4 | 5
A cooperative is an organisation with “the primary purpose of pro-
moting or safeguarding the specific economic interests of the soci-
ety’s members by way of collective self-help” 6. It is open to private
individuals, as well as to corporate and state actors.7 Since 1990,
more than one hundred new RE cooperatives have been founded,
most of them active in the production of electricity from solar pho-
tovoltaics and heat from wood chips. 8 | 9 Instead of electricity, these
cooperatives offer in most cases financial shares in their projects,
with annual return rates between 1.5 and 2.5 % to their members.10
In recent years, consumer co-ownership has provided new
opportunities for partnerships (partnership model). For example,
12 COMMUNITY FINANCE Renewable Energy Cooperatives
Community finance can provide funding for renewable energy projects and allow small-scale retail investors to invest in renewable energy.
The number of such projects is expected to further increase while prices of renewables are expected to further decline, which will support the creation of a profitable investment environment.
Besides financial benefits, community energy projects increase electricity-customer engagement with renewa-bles, customer satisfaction and loyalty, and community well-being.
ALEXANDER STAUCHResearch Associate and PhD Student, Institute for Economy and the Environment, University of St. Gallen (Corresponding Author)
ANNA EBERS BROUGHELPost-Doc Researcher, Institute for Economy and the Environment, University of St. Gallen (Co-Author)
BENJAMIN SCHMIDVisiting Scientist, Swiss Federal Institute for Forest, Snow and Landscape Research (WSL) (Co-Author)
PASCAL VUICHARDResearch Associate and PhD Student, Institute for Economy and the Environment, University of St. Gallen (Co-Author)
SWISS SUSTAINABLE FINANCE 65Community Finance
an installer, often a non-for-profit start-up, develops a RE project
and partners with a utility to sell the project shares to the utility’s
clients. The utility, in turn, delivers the produced ‘green’ electricity
to their clients through their grid and manages the billing. In this
set-up, the consumer does not have to be a property owner, which
might prove attractive to a wider segment of the population, espe-
cially tenants. New partnership schemes can also involve a public
entity (e.g. a cantonal or federal agency in charge of promotion of
RE) and a non-energy company that promotes RE as part of their
new business strategy (e.g. IKEA’s solar business 11 ) or corporate
social responsibility (e.g. retailer Coop 12 ).
Alternatively, consumer co-ownership projects can also be
directly initiated by the utility itself (utility-based model). Instead
of partnering with another entity, the utility plans and realises the
renewable energy project, which is in most cases a solar power pro-
ject. In most cases, the utility offers shares in forms of solar panels
to its customers.
Access of private funding for low-carbon solutions : Examples from Switzerland
I. Cooperative model : Energiegenossenschaft Schweiz (EGch)
was founded in 2012 with the aim of setting up the largest
decentralised solar power plant in Switzerland by creating
‘electricity commons’ (Stromallmende) consisting of small
energy producers and consumers.13 The annual general assem-
bly of EGch acts as an exchange platform for certificates of
origin, where electricity consumers and producers negotiate
a price for purchase and sale. In 2017, the certificates cost
0.07 CHF/kWh for the consumer, of which 0.05 CHF/kWh were
received by the producer and 0.02 CHF/kWh by EGch to cover
its administrative costs.14
II. Partnership model : Another example of a partnership that
promotes citizen co-ownership of renewable energies is the
collaboration between Sunraising Bern, a non-profit start-up
founded in 2015, and the electricity utility Energiewerke Bern
(EWB).15 As its name suggests, Sunraising stands for a combina-
tion of solar power and fundraising, offering the residents of
Bern the possibility to buy a share representing a certain num-
ber of square metres of a locally installed solar plant. As com-
pensation, the customers of Sunraising receive a respective
share of electricity from solar power for 20 years, which
roughly corresponds to the life cycle of a solar plant. In this
set-up, Sunraising is in charge of installing the solar panels and
their maintenance, as well as selling the shares of the solar
plant. The produced solar power is fed into the electric grid
managed by the EWB, which delivers the electricity to the
Sunraising customers. As of today, Sunraising produces
262,400 kWh of local solar power per year.
III. Utility-based model : Elektrizitätswerke Zürich (EWZ), a
utility of the city of Zurich, has offered its customers the pos-
sibility to purchase shares of locally installed solar plants
since 2014.16 After buying a certain number of ‘square metres’
of a chosen solar plant, EWZ customers annually receive 80
kW/h of solar electricity per purchased square metre, for the
duration of 20 years. If the consumer wants to cancel their con-
tract due to moving house or other circumstances, these shares
can be sold back to EWZ. The model’s success is evident from
the fact that within a matter of days EWZ sold out the shares of
six large solar plants (between 1,000-2,500 m²).17 As of 2018,
there were several more examples of municipal solar schemes
in Switzerland.18
Regulatory environment regarding energy co-ownership in Switzerland The year 2018 brought about a number of changes to the existing
federal support policies for RE. Since 2009, electricity production
from renewable sources has been supported through the payment
of a feed-in tariff (Kostendeckende Einspeisevergütung, KEV). Updated
legal provisions stipulate that new projects may be considered for
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 66
the feed-in-tariff payments until the end of 2022, while existing
electricity producers that already receive KEV will continue receiv-
ing the payments as planned.19 Starting from January 2020, larger
electric producers with an installed capacity of over 100 kW will
need to start direct marketing of the generated electricity (Direktver-
marktung), allowing the producers to receive the negotiated price
and a feed-in-premium (Einspeiseprämie).
Another important legislative provision is the possibility to
form ‘self-consumption communities’ (Eigenverbrauchsgemein-
schaften) on adjacent plots of land, given that the community’s elec-
tricity-generating capacity amounts to at least 10 % of the connected
load.20 The law stipulates that the grid operator shall regard such a
community as a single consumer. Thus, large self-consumption
communities with electricity consumption of more than 100,000
kWh a year could enter the liberalised Swiss energy market for large
consumers. This provision opens new opportunities to community
ownership projects, when neighbouring landowners or tenants in
multi-occupancy homes pool their demand for electricity and take
advantage of self-consumption models or even electricity trading.
Opportunities, barriers and enablersConsumer co-ownership of REs might be hindered by the absence
of electricity market liberalisation in the small-consumer segment
(i.e. less than 100,000 kWh per year). Due to a stable customer base,
as small consumers do not have the freedom to switch providers, an
interactive relationship between customers and municipalities
local utilities is rare.21 Moreover, the incumbent utilities have sig-
nificant market power when negotiating with new market entrants,
be it an interconnection issue or a power purchase agreement.22
New market entrants offering consumer co-ownership of REs must
collaborate with the local utilities to dispatch the produced electric-
ity to private consumers via the local power grid. It is likely that
with market liberalisation and increased consumer co-ownership
of REs, the utilities will change from product-oriented towards
more service-oriented organisations, paying more attention to cus-
tomer satisfaction and retention rates.23
Even though financial motives lag behind other considerations
(such as supporting the environment), about a fifth (21 %) of Swiss
consumers regard financial returns as one of the two main reasons
for investing in RE projects.24
Generally, consumer surveys identify considerable market
potential for community projects in Switzerland : about 60 % of
respondents said that they would be interested (or maybe inter-
ested) in investing in a community-owned REs.25 | 26 On average,
potential investors tended to have higher levels of education, be
more optimistic about RE achieving grid parity, believe in a future
without fossil fuels, and be more welcoming to wind energy pro-
jects in their communities.27 However, the market still has a lot of
room for growth, with only about 1.9 % of the German- and
French-speaking population in Switzerland having already invested
in community finance (compared to 7 % in Austria).28 | 29
OutlookOne of the major changes will be the replacement of the current
feed-in-tariff system with a steering policy, which could include an
energy steering charge (Lenkungsabgabe). The Swiss Federal Depart-
ment of Finance is also considering an ecological tax reform. It is
yet to be seen whether these policy proposals would have a positive
or negative impact on community finance. Similarly, it is unclear
whether liberalisation of the electricity market, as currently dis-
cussed in the Swiss parliament, would address the current chal-
lenges faced by community RE projects. However, community
energy projects are expected to further increase in number while
prices of renewables are expected to further decline, which will sup-
port the creation of a profitable investment environment.
Further reading— Broughel, A. E., Stauch, A., Schmid, B., & Vuichard, P. (2019). Consumer (Co-)
Ownership in Renewables in Switzerland. In : J. Lowitzsch (Ed.), Energy transition. Financing consumer co-ownership in renewables (pp. 451–476) Palgrave Macmillan : Cham.
SWISS SUSTAINABLE FINANCE 67Community Finance
1 More details on this topic can be found in the book chapter “Consumer (Co-) Ownership in Renewables in Switzerland” written by Broughel, A. E., Stauch, A., Schmid, B., & Vuichard, P. (2019) in the book Energy Transition (pp. 451–476) from Palgrave Macmillan.
2 Purtschert, R. (Ed.). (2005). Das Genossenschaftswesen in der Schweiz. Bern : Haupt.
3 Gugerli, D. (1996). Redeströme. Zur Elektrifizierung der Schweiz ; 1880–1914. Zürich : Chronos.
4 Klemisch, H. & Vogt, W. (2012). Genossenschaften und ihre Potenziale für eine sozial gerechte und nachhaltige Wirtschaftsweise. WISOZ Diskurs, Bonn, F riedrich-Ebert-Stiftung. Retrieved from : https://library.fes.de/pdf-files/wiso/09500-20121204.pdf
5 Schmid, B. & Seidl, I. (2018). Zivilgesellschaftliches Engagement und Rahmen- bedingungen für erneuerbare Energie in der Schweiz. In Holstenkamp, L.& Radtke, J. (eds), 2018. Handbuch Energiewende und Partizipation (pp. 1093–1106). Wiesbaden : Springer.
6 Swiss Code of Obligations (SR 220), Art. 828
7 Ibid., Art. 828, Art. 926
8 Rivas, J., Schmid, B., Seidl, I. (forthcoming). Energiegenossenschaften in der Schweiz. WSL Bericht. www.wsl.ch/de/publikationensuchen/wsl-berichte.html
9 Typically, these new cooperatives invest in a photovoltaics installation on a large rooftop of a school or a municipal building (ibid.). The produced electricity and the certificates of origin can be subsequently sold to the grid operator, the cooperative members for self-consumption or to other individual actors.
10 See for example www.solar-sg.ch
11 See : www.ikea.com/ch/de/campaigns/solar-pubfde05f01
12 See : www.taten-statt-worte.ch/de/nachhaltigkeitsthemen/umweltschutz/ener-gie-und-klimaschutz.html
13 Energiegenossenschaft Schweiz (n.d.). Solarstrom aus der Stromallmend. Retrieved from : www.energiegenossenschaft.ch/wp2/produkte/solar-strom-kaufen/
14 Ibid.
15 SunRaising (2017). Die Solardach Challenge : Dein Solarstrom, Anleitung, FAQs, Über Uns. Retrieved from : https://sunraising.ch/challenge/anleitung/
16 EWZ (2017). Energie produzieren für Private – an Solaranlage beteiligen : Ewz.solarzüri. Retrieved from : www.ewz.ch/de/private/energie-produzieren/an-solaranlage-beteiligen.html
17 Ibid.
18 For example “Miinstrom” in the region of Baden AG, or “Waldsolar” from the town Wald ZH
19 Swiss Federal Office of Energy (2.11.2017). Wichtigste Neuerungen im Energierecht 2018. Retrieved from : www.newsd.admin.ch/newsd/message/attach-ments/50166.pdf
20 Energiegesetz (EnG) vom 30. September 2016 (SR 730.0)
21 Schicht, R., Mueller, M., Niemeyer, C., Frank, M., Muster, S. & Meier, M. (2012). Schweizer Stromwirtschaft zwischen Abwarten und Aktivismus – Standortbestimmung der Schweizer Energieversorgungsunternehmen. Available at : www.strom.ch/uploads/media/BCG-VSE_Studie-Stromwirtschaft_06-2012_01.pdf
22 Girod, B., Lang, T. & Naegele, F. (2014). Energieeffizienz in Gebäuden : Heraus-forderungen und Chancen für Energieversorger und Technologiehersteller. Retrieved from : www.sustec.ethz.ch/content/dam/ethz/special-interest/mtec/sustainability-and-technology/PDFs/SER_Final_report.pdf
23 Schicht, R., Mueller, M., Niemeyer, C., Frank, M., Muster, S. & Meier, M. (2012). Schweizer Stromwirtschaft zwischen Abwarten und Aktivismus – Standortbestimmung der Schweizer Energieversorgungsunternehmen. Retrieved from : www.strom.ch/uploads/media/BCG-VSE_Studie-Stromwirtschaft_06-2012_01.pdf
24 Ibid.
25 Ebers, A., Wüstenhagen, R. (2015). 5 th Consumer Barometer of Renewable Energy. University of St. Gallen. Retrieved from : www.alexandria.unisg.ch/249530
26 Gamma, K., Stauch, A., Wüstenhagen, R. (2017). 7 th Consumer Barometer of Renewable Energy. University of St. Gallen. Retrieved from : www.iwoe.unisg.ch/kundenbarometer
27 Ebers, A. & Hampl, N. (2017). Community financing of renewable energy projects in Austria and Switzerland : profiles of potential investors. Working paper. University of St. Gallen : St. Gallen. Retrieved from : www.alexandria.unisg.ch/253134/
28 Ebers & Hampl (2017).
29 Gamma et al. (2017).
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 68
How Lausanne City Council is harnessing solar potentialSI-REN SA is a wholly owned subsidiary of Lausanne City Council.1
The company was set up in 2009 to deliver the council’s target of
increasing electricity generation from solar photovoltaic (solar PV),
wind, biomass, geothermal and other renewable sources to 100
GWh per year. By 2019, solar panels had appeared on rooftops across
the city thanks to the model, including schools, factories, offices
and sports complexes. These 53 solar PV plants, totalling installed
capacity of 10.96 MW, generate 12 GWh of electricity annually – and
a further 42 projects are in the pipeline. The council’s long-term
ambition is to increase output to 30 GWh per year, with solar PV
plants covering one-third of eligible rooftops on large buildings.
Model 1 : Rent-a-roof and compensatory feed-in remunerationSI-REN, working with the School of Management and Engineering
Vaud (HEIG-VD), produced a map of all roofs in Lausanne over
25 sq m in size with the correct orientation for solar PV. The map-
ping exercise, which was funded by the council’s Energy Efficiency
Fund (FEE), revealed solar potential of over 100 GWh per year.
SI-REN aims to tap into this potential using the “rent-a-roof”
model : the company approaches building owners and offers to rent
suitable rooftop real estate in return for a fee. SI-REN takes care of
the logistics, from assessing solar potential, to sourcing the solar
panels and installing the plant.
SI-REN then sells the generated electricity to Services industri-
els de Lausanne (SiL), the city’s energy supplier, under a deal that
delivers a return on its investment. The agreed price covers share-
holder payouts, third-party debt costs, staffing costs and rental fees
paid to building owners. This model worked especially well under
the old compensatory feed-in remuneration scheme, when the
Swiss government offered a guaranteed price, fixed for 20 years,
which provided fair compensation for the initial investment.
Model 2 : Rent-a-roof and private-consumption communityA recent rule revision means that owners of buildings with solar PV
plants can now consume the electricity they produce, and sell any
surplus power to other neighbouring properties connected to a pri-
vate local grid. Under SI-REN’s new model, which reflects the
change in the law, owners can now benefit on two levels. First, they
receive a rental fee for use of their roof space. Second, they also ben-
efit from a private tariff for the self-generated electricity which is
lower than the tariff they would have to pay to the distribution net-
work operator (DNO), thanks to the absence of infrastructure con-
struction and maintenance costs.
The 2018 Swiss Energy Act (EnA) introduced the “private-con-
sumption community” concept in a drive to increase solar adoption
and promote private consumption.2
SI-REN’s private-consumption community model : How it works Figure 29 on the following page gives an overview of a typical private-
consumption community, showing all the relevant parties and
energy flows.
This case study shows how the city of Lausanne set up a company to successfully implement and invest in rent-a-roof models to develop solar photovoltaics.
This leasing model can deliver attractive returns for the investor company and allows building owners to install PV and benefit from renewable energy without high upfront costs.
12.1 CASE STUDY A PROMISING INVESTMENT MODEL FOR A CITY TO FOSTER SOLAR POWER The experience of Lausanne City Council
JEAN LAVILLEDeputy CEO, Swiss Sustainable Finance
RICHARD MESPLEFormer Director, SI-REN
SWISS SUSTAINABLE FINANCE 69A Promising Investment Model for a City to Foster Solar Power
ConclusionLausanne City Council set up a standalone company (SI-REN) to
generate more electricity from renewable sources in and around the
city. Ten years on, the company has outperformed all expectations :
developing unparalleled expertise in solar PV plant installation,
achieving its output targets, and demonstrating the flexibility to
adapt to sweeping changes in the legal landscape. Moreover, stead-
ily falling solar production costs mean the company has a viable
business model going forward.
The model is also good news for building owners who, since
the private-consumption community model was introduced into
Swiss law, have effectively been able to lease a solar PV plant, and
benefit from the electricity it generates, without the upfront invest-
ment costs (SI-REN finances the infrastructure).
1 See company website : www.si-ren.ch/solaire/2 SuisseEnergie (2019). Guide pratique de la consommation propre. Version 2.1.
https://pubdb.bfe.admin.ch/fr/publication/download/9329
Legend and comments
A. The owner of the investor. In this case, SI-REN (the investor) is a wholly
owned subsidiary of Lausanne City Council (the owner), which set up the company
to deliver its target of generating electricity from renewable sources.
B. The investor. SI-REN invests in the solar PV infrastructure.
C. The building owner. SI-REN leases the roof from the building owner. The company
deals with many different types of owners. If the owner is also an electricity
consumer, SI-REN has more options at its disposal.
D. The community manager. If the building is a block of flats, the property
management company might decide to manage the community alongside the
building’s heating, as well as taking care of billing. Alternatively, management
responsibility could be outsourced to a third-party provider.
E. Tenants. In the past, tenants had no option but to source electricity from their
local DNO. In a private-consumption community, tenants have private meters and
enjoy cheaper bills because they pay no standing charges, or any other charges,
on the solar power they use.
Setting up a private-consumption community step-by-step
1. The owner of the investor (in this case, SI-REN) gives the green light.
2. The building owner signs a roof lease agreement with SI-REN.
3. SI-REN’s project managers draw up the plans, and the company appoints an
installer to fit the solar PV plant to the roof.
4. The owner appoints a community manager (the property management company
or a third-party provider).
5. The distribution network operator (DNO) continues supplying electricity to a single
customer (the community), but no longer deals directly with individual members
(former captive customers).
6. The community manager bills members according to how much electricity they use
(solar and mains).
7. SI-REN sells the solar power to community members (via the community manager),
but does not feed it into the mains grid (operated by the DNO).
8. Surplus solar power is sold to neighbouring properties (if they are connected to
the private-consumption community).
9. Any remaining surplus is injected back into the grid at a negotiated or predetermined
feed-in tariff.
Figure 29 :MODEL ILLUSTRATION OF PRIVATE-CONSUMPTION COMMUNITY MODEL
Source : SI-REN, 2019
A
3
4
6
B
C
D
E
HOW A TYPICAL PRIVATE-CONSUMPTION COMMUNITY LOOKS
2
89
1
7 5
Community boundaryCommunity boundary
Ville de Lausanne
Building owner
SI-REN
Services industriels de Lausanne (Network operator)
Services industriels de Lausanne
(Network operator)
Community manager
Tenants
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 70
13 FUNDAMENTALS OF CARBON CREDIT MARKETS Opportunities, Barriers and Enablers
In 2015, the Paris Agreement marked the world’s first high-level
commitment on the mitigation of climate change. It focused on two
key areas : (1) the development of targeted national energy and cli-
mate policies to achieve average temperatures well below 2° C above
pre-industrial levels, and (2) a significant increase of capital market
flows to fund a low-carbon transition including, among others, the
development of climate-resilient infrastructure. As companies mit-
igate their carbon-intensive activities and set science-based emis-
sion reduction goals, global carbon markets are likely to provide a
natural bedrock for policy development and innovative climate
finance solutions available to the global investment community.
While the outbreak of COVID-19 in the first quarter of 2020 may have
slowed down the impact of carbon pricing mechanisms, govern-
mental resilience packages remain focused on supporting net-zero
emissions by 2050.
The evolution of carbon tradingOver the last 10 years, carbon emissions trading has become a pri-
mary instrument of climate change policies and one of the most
innovative commodity markets to-date. First proposed by the Euro-
pean Commission in 1999, trading of carbon emission certificates is
based on the establishment of an Emission Trading Scheme (ETS).
For the most part, it relies on a “ cap and trade ” setting for which
tradable units are exchanged according to pre-set supply limits (i.e.
number of available certificates, also known as “ allowances ” and
“ caps ”).1 This market-based mechanism aims at incentivising emit-
ters to reduce carbon dioxide (CO2) emissions by directly assigning
a cost to carbon-emitting operations. The term “ carbon credits ”
refers to tradable certificates of one ton (t) of CO2 or its equivalent
greenhouse gases (GHG - tCO2e). There are 31 ETSs currently in place
globally.2 The most well-known ETS is the European Union ETS (EU
ETS) established since the Kyoto Protocol in 2005. As financing solu-
tions to climate change entail the assessment of existing pools of
investments for the reduction of GHG emissions across portfolios,
investors welcome the introduction of financial instruments that
effectively price and mitigate systemic exposures to carbon risk and
unveil investment opportunities in green technologies.
According to the World Bank Group, over 70 market partici-
pants ranging from regional, national and subnational entities have
participated in carbon pricing initiatives in 2019, covering nearly
22 % of global GHG emissions. They generated an excess of USD 45
billion carbon pricing revenues, a USD 1.0 billion annual increase
versus the previous year.3 Yet, the total supply of allowances granted
under each scheme (i.e., the number of tradable emission credits or
offsets that a company may receive by operating yearly within its
With companies stepping up their efforts to mitigate their carbon-intensive activities and set science-based emission reduction goals, global carbon markets are likely to provide a natural bedrock for policy develop-ment and financial innovation, especially in light of the recovery from the COVID-19 pandemic.
As a result, financial institutions are increasingly applying carbon pricing scenarios in their disclosure of climate-related risks and opportunities in a variety of sectors, from banking to insurance underwriting and asset management.
ALESSIA FALSARONEHead of Sustainable Investing, Developed Markets Fixed Income, PineBridge Investments
ALAIN MEYERManaging Director / Country Head Switzerland, PineBridge Investments
ROBERT VANDEN ASSEMHead, Developed Markets Fixed Income, PineBridge Investments
SWISS SUSTAINABLE FINANCE 71Fundamentals of Carbon Credit Markets
emission cap) has a direct impact on the overall depth and effective-
ness of the market. A common example of their use is that of a cor-
poration which offsets GHG-intensive processes with direct invest-
ments in emission-saving projects in order to adhere to emission
regulations and avoid monetary sanctions. This is the case, for
example, for the automotive sector in Europe (starting from 2019) or
the chemicals sector in China as of 2017.4 For automotive manufac-
turers, the rollout of electric vehicles introduced a “ net credit ” com-
ponent towards exceeding CO2 limits, since it encourages produc-
tion and consumption shifts towards carbon neutrality.
Regulatory shift : From emission caps to a green taxonomyThe numerous legislative efforts surrounding climate change have
presented various barriers to the growth of carbon markets. Most
notably, the need of market participants to have access to custom-
ised contracts to minimise carbon risk is meeting investors’ demand
for centralised and transparent, exchange-based solutions to reduce
the GHG emission profile of portfolios. In addition, they also help
to fund the development of new technologies. Starting in 2017, pol-
icymakers have shifted their attention to turning the initial barriers
into enablers. The regulatory updates emphasise the structural
advantages of ETSs, such as access and liquidity. The most impactful
reforms have prioritised the reduction of total supply of carbon
credits by steadily lowering caps, and by positioning each scheme
level in line with the Paris Agreement thresholds post 2020. The
introduction of the EU Green Deal in December 2019 and its 2050
carbon neutrality pledge is expected to be a catalyst for additional
carbon pricing initiatives affecting economic sectors beyond the
ones currently covered by the existing ETSs.
While it is premature to argue policy convergence, recent
reports on the progress of the EU ETS in cutting emissions point to
a steady path toward achieving a 40 % reduction in GHG emissions
by 2030.5 | 6 The EU ETS was the first cap-and-trade programme for
GHG emissions and is now the cornerstone of the EU climate policy.
In 2017, Switzerland and the EU agreed to link their emissions trad-
ing schemes, which will give Switzerland access to the large and
more liquid EU CO2 trading market starting in 2020.7 As of June 2019,
China established the largest carbon pricing initiative in the world
with the launch of the National Carbon Emission Rights Trading
Market for the Chinese power generation industry. Even as its effec-
tiveness is still to be tested, it has given a strong market signal with
respect to the country’s commitment to climate adaptation and mit-
igation policies.8
Concurrently with the launch of the Chinese ETS in June 2019,
the European Commission released its classification system for sus-
tainable activities, also known as the EU taxonomy. The taxonomy
is a series of technical screening criteria for economic activities and
will bring more clarity and comparability to the assessment and
pricing of the environmental impact of different economic activi-
ties. In the absence of more homogeneity in the technical criteria
established by global regulators, financial market participants are
prioritising compliance with climate transition and Paris-aligned
standards. That poses another near-term headwind to effectively
incorporate carbon trading as a way to design consistent low-car-
bon transition pathways in portfolio allocations besides leveraging
carbon pricing in scenario planning activities.
Pricing carbon : The fair price of emissionsIn light of the historical peaks in GHG emissions in 2018 9, the pric-
ing of carbon emissions has become an essential public finance tool
to execute low-carbon transition plans. Approximately half of the
signatories of the Paris Agreement have submitted pledges in the
form of Nationally Determined Contributions (NDCs) as of June
2019. While national climate policies reference carbon pricing (i.e.,
the price associated with a permit to emit one metric ton of CO2),
only 20 % of global GHG emissions are covered by a pricing scheme,
of which less than 5% exhibit pricing levels in line with the regional
pledges needed to fulfil the Paris Agreement (see Table 8).
Since 2015, broader intervention at the national level has con-
tinued to put upward pressure on the price of carbon permits
(allowances) which tend to be positively correlated with the price of
energy as a way to reduce demand from traditional energy sources.
As an example, under the EU ETS, National Allocation Plans (NAPs)
determine the total quantity of carbon allowances that member
states grant companies to buy or sell over a specified time horizon.
The 2008 economic downturn resulted in a structural oversupply of
allowances in the market. As of 2018, the EU ETS was reformed to
include a discretionary increase in the annual reduction rate of the
Table 8 :CARBON EMISSION PRICING IN LINE WITH THE PARIS AGREEMENT
BY 2020
USD 40 to USD 80 per CO₂ ton
BY 2030
USD 50 to USD 100 per CO₂ ton
Source : CPLC, Report of the High-Level Commission on Carbon Prices, May 29, 2017. Any opinions, projections, forecasts or forward-looking statements are valid as of the date indicated, and are subject to change.
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 72
emissions cap and, effective January 2019, the implementation of a
rule-based supply-side control, the Market Stability Reserve (MSR)
which targets an increasingly reduced volume of authorised per-
mits. The MSR is likely to result in price hikes of an estimated 30 %
in 2050 (see Figure 30).10
However, while carbon pricing under these schemes varies
widely, over 50 % of the emissions covered by the existing ETSs price
a metric ton of carbon at less than USD 10, underpinning the limited
efficacy of carbon markets in assisting effective climate action to
date.11 The implementation of carbon pricing initiatives remains a
key challenge to reaching fair pricing conditions and closing the
gap with Paris-aligned levels or those set by new climate transition
benchmarks.
Recent dialogue on the targeted climate policy outcomes has
focused on more stringent climate change policies. In fact, while
ETS mechanisms focus on setting an “ explicit ” price for carbon
emissions, “ implicit ” pricing associated with pollution abatement
and incentives to reduce the footprint of carbon intensive pro-
cesses and operations are increasingly setting viable reference
points to address the issue (e.g., fossil fuel subsidy or fuel tax
reforms).12
The road ahead : Innovations in carbon pricing At the international level, there continues to be renewed interest in
cooperating to reduce the cost of implementation of carbon emis-
sion markets alongside promoting intergovernmental action on
sustainable development. However, the current fragmentation of
carbon trading schemes poses structural liquidity issues for private
capital to be put to work in a cost-efficient manner. Furthermore, as
evidenced during COP25 in Madrid, rules and procedures for effec-
tive deployment of carbon markets mechanisms are still not fully
settled. For example, the issue of properly accounting for emissions
reductions and avoiding potential double-counting remains
unsolved.
In 2017, the final recommendations were released by the Task
Force on Climate-Related Financial Disclosures (TCFD). As a result,
capital allocation decisions are increasingly driven by the need for
transparency. That extends to both market mechanisms and finan-
cial instruments which price carbon, and therefore climate risk,
through market-tested standards.13 Financial institutions are more
and more likely to employ carbon-pricing scenarios when disclos-
ing climate-related risks and opportunities in their activities. This
applies to banking, insurance underwriting and asset management,
Figure 30 :HISTORICAL EU ETS CARBON PRICE (APRIL 2008 – DECEMBER 2019)
Source : Bloomberg Commodity Pricing ; Generic Carbon Future Contract “ MO1 Comdty ”. For illustrative purposes only. We are not soliciting or recommending any action based on this material.
35
30
25
20
15
10
5
0
Apr ’08 Aug ’09 Dec ’10 Apr ’12 Aug ’13 Dec ’14 Apr ’16 Aug ’17 Dec ’18 Dec ’19
EUR per tCO2
Global Financial Crisis(surplus of carbon credits)
ParisAgreement
EU MarketStability Reserve
SWISS SUSTAINABLE FINANCE 73Fundamentals of Carbon Credit Markets
but also specifically to areas that encompass overall business strat-
egy or risk management policies as detailed by the TCFD. Responsi-
ble investors will continue to adopt carbon pricing as a stress-test-
ing tool to gauge economic exposures and transition portfolio
allocations to meet climate mitigation targets set by local regulators.
Conclusion and outlookLooking ahead, carbon finance is set to drive two main streams of
innovation : (1) the decarbonisation of financial assets relating
to the transition of carbon-intensive economic activities to low-
carbon alternatives in line with climate scenarios well below 2° C,
and (2) the design and functioning of a sustainable financial system
where economic growth is compatible with the socio-economic
changes necessary to mitigate climate emergencies and enable a
balanced cycle of production and consumption of natural
resources.14 While the harmonisation of international carbon pric-
ing mechanisms is far from a global reality, carbon pricing will
continue to be an essential policy lever in meeting climate targets.
The future role of carbon finance ultimately depends on its ability
to incorporate climate mitigation targets in the direct pricing of
carbon risk and raise it to significant levels.
1 ICAP. (2019). Emissions Trading Worldwide: Status Report 2019. Berlin : ICAP.
2 World Bank Group. (2020). State and Trends of Carbon Pricing 2020. Washing-ton, DC : World Bank.
3 Ibid.
4 EU Regulation 2019/631.(Effective 1 Jan. 2020). CO2 emission performance standards for new passenger cars and for new light commercial vehicles. Retrieved from : https://ec.europa.eu/clima/policies/transport/vehicles/cars_en
5 EU Commission. (26 Oct. 2018). Report From The Commission To The European Parliament And The Council. EU and the Paris Climate Agreement: Taking stock of progress at Katowice COP. Retrieved from : https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52018DC0716
6 ICAP. (2019). Emissions Trading Worldwide: Status Report 2019. Berlin : ICAP.
7 FOEN. (n.d). Linking the Swiss and EU emissions trading schemes. Retrieved from : www.bafu.admin.ch/bafu/en/home/topics/climate/info-specialists/cli-mate-policy/emissions-trading/linking-the-swiss-and-eu-emissions-trading-schemes.html
8 Zhang, Y., Harris, J., Li, J. (Apr. 2018). China’s Carbon Market: Accelerating a Green Economy in China and Reducing Global Emissions. GDAE Working Paper No. 18–01, Tufts University. Retrieved from : https://sites.tufts.edu/gdae/files/2019/10/18-01_ZhangHarris_ChinasCarbonMarket.pdf
9 IPCC. (2018). Global Warming of 1.5° C. Retrieved from : https://www.ipcc.ch/sr15/
10 Quemin, S., Trotignon, R. (Jan. 2019). Intertemporal emissions trading and market design: an application to the EU ETS, Grantham Research Institute on Climate Change and the Environment Working Paper No. 316 ISSN 2515-5717 (Online). Retrieved from : www.lse.ac.uk/GranthamInstitute/wp-content/uploads/2019/01/working-paper-316-Quemin-Trotignon.pdf
11 World Bank Group. (2020). State and Trends of Carbon Pricing 2020. Washington, DC : World Bank.
12 Ibid.
13 TCFD. (June 2017). Recommendations of the Task Force on Climate-Related Financial Disclosures. Retrieved from : www.fsb-tcfd.org/wp-content/uploads/2017/06/FINAL-TCFD-Report-062817.pdf
14 Daly, H.E. (1997). Beyond Growth : The Economics of Sustainable Development. Massachusetts; Beacon Press. ISBN : 978-080704709
DisclosureInvesting involves risk, including possible loss of principal. The information presented herein is for illustrative purposes only and should not be considered reflective of any particular security, strategy, or investment product. It represents a general assessment of the markets at a specific time and is not a guarantee of future performance results or market movement. This material does not constitute investment, financial, legal, tax, or other advice; investment research or a product of any research department; an offer to sell, or the solicitation of an offer to purchase any security or interest in a fund; or a recommendation for any investment product or strategy. PineBridge Investments is not soliciting or recommending any action based on information in this document. Any opinions, projections, or forward-looking statements expressed herein are solely those of the author, may differ from the views or opinions expressed by other areas of PineBridge Investments, and are only for general informational purposes as of the date indicated. Views may be based on third-party data that has not been independently verified. PineBridge Investments does not approve of or endorse any re-publication or sharing of this material. You are solely responsible for deciding whether any investment product or strategy is appropriate for you based upon your investment goals, financial situation and tolerance for risk.
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 74
In this case study, we present an economic and environmental pro-
spective analysis for the use of timber buildings in Switzerland.
Wood building materials can avoid emissions caused during con-
crete and steel production processes and tie up CO2 for decades. Our
analysis assess the effects of applying carbon storage credits to such
timber projects.1 We first calculated the environmental impact and
CO2 storage for timber buildings using a Life Cycle Assessment
(LCA).2 LCA is a well-established methodology and proposes an
input-output relationship between human activities and the envi-
ronment.3 | 4 | 5 | 6 For the economic assessment, we developed dis-
counted cash flow (DCF) models, considering factors such as rents,
operational costs, renovation and refurbishing funds. We collected
a sample of over 11,000 properties in Switzerland to develop the pro-
spective models. The results are relevant for real-estate analysts
seeking to accurately estimate opportunities in timber buildings.
Prospective environmental analysisWe developed LCA models for typical residential buildings in Swit-
zerland in order to estimate the amount of CO2 that could be poten-
tially stored by building with timber. Moreover, we calculated the
CO2 emissions associated with the transport and production of con-
struction materials required for a timber building. With this infor-
mation we calculated the CO2 balance (carbon footprint) for each
property in our sample. A positive balance means that the CO2 emis-
sions from the production and transport of construction materials
are lower than the CO2 stored in the timber parts of the buildings.7 If
this condition was met, we then assigned a carbon credit for each
ton of CO2 stored during each year of the ten-year DCF calculation.
In our case the carbon credit has a value of CHF 120 8 based on the
carbon tax levels proposed by the Swiss Federal Office for the Envi-
ronment. The results from these calculations were then transferred
to the DCF models as an additional cash flow.
Prospective economic analysisFor this analysis, we calculated the Discounted Cash Flows (DCF) for
each building in the sample, over a period of ten years. DCF analysis
is a method of valuing a project using the concept of the time value
of money and is widely used in investment finance and real-estate
management.9 DCF analysis computes the net present value (NPV)
of a project by taking cash flows and a discount rate as inputs. For
our calculations, we used real data for each of the 11,000 properties
in our sample. To understand the effect of a carbon credit for the
Timber buildings can potentially generate additional cashflows from carbon credits, which can increase the attractiveness of timber real estate investments compared to traditional building materials such as concrete and steel.
This attractiveness is however highly dependent on the assumed carbon credit price and developments on the regulatory level.
13.1 CASE STUDY CHALLENGES AND OPPORTUNITIES FOR TIMBER BUILDINGS IN THE SWISS REAL ESTATE MARKET The Role of Carbon Credits
DR EDWIN ZEA ESCAMILLAHead of Sustainable Building and Real Estate, Centre for Corporate Responsibility and Sustainability at the University of Zurich (Corresponding Author)
DR MICHAEL KLIPPELSenior Scientist Chair of Timber Structures, ETH Zurich & Swiss Timber Solutions
DR ISA CAKIRHead of Sustainable Finance, Centre for Corporate Responsibility and Sustainability at the University of Zurich
MARTYNA MANIAKScientific Assistant, Centre for Corporate Responsibility and Sustainability at the University of Zurich
SWISS SUSTAINABLE FINANCE 75Challenges and Opportunities for Timber Buildings in the Swiss Real Estate Market
storage of CO2 in timber buildings, we developed two prospective
scenarios : (i) considering a one-time carbon credit payment for CO2
storage and (ii) considering an annual carbon credit payment for
CO2 storage. For each scenario we incorporated the CO2 storage
credit value in the cash flows of each building.
Results and discussionThe results from the environmental prospective analysis showed
that on average 0.19 t CO2 equivalents (CO2 eq) are emitted for the
production of materials while 0.56 t CO2 eq are stored in timber ele-
ments per square metre constructed. This means that in the pro-
posed scenarios the properties had a positive CO2 balance. Conse-
quently, each square metre of timber buildings in Switzerland stores
approximately 0.37 t CO2 eq. On the prospective economic scenarios,
this will represent an additional cash flow from carbon credits of 44
CHF/m². To better understand these dynamics, we calculated the
percentage of change of the DCFs for the scenarios of one-time and
yearly carbon credits payments as presented in Figure 31.
From Figure 31 it is clear that the scenario with yearly carbon
credit payment has the highest Percentage of Change (PoC), with a
potential increase up to 39 % higher than the DCF without the car-
bon credits. Furthermore, the scenario with a one-time carbon
credit payment does not reach the 1 % PoC. If we consider that tim-
ber buildings have a higher initial investment – around 2 % in com-
parison to concrete buildings – it becomes clear that a carbon credit
scheme for the storage of CO2 requires either a yearly payment or a
higher valuation of the carbon credits, or a combination of these
factors, to make it economically interesting. This is a very challeng-
ing situation, since currently only emitters are charged and so far
there is no scheme to compensate for the storage of CO2, even if it is
a relevant commitment from the Paris Agreement.10 If such a
scheme were put into place, this could make investment in timber
real estate more attractive and provide a carbon sink.
Our results show that a consistent economic policy is required
to support the development of the timber industry and compensate
for the additional environmental service, CO2 storage, provided by
timber buildings. Moreover, a clear financial infrastructure is
required to handle carbon credits for emitters and CO2 stores. We
can conclude that in the case of timber buildings, carbon credits can
provide a sustainable way to finance the transition towards a
low-carbon economy in Switzerland.
1 CO2 storage credits as a policy instrument do not yet exist in Switzerland. However, the Federal Office for the Environment (FOEN) is assessing the potential of timber buildings for CO2 storage. The authors would like to acknowledge FOEN’s Action Plan Wood (AP HOLZ) for financing the research activities around this topic. The results presented in this article are part of a FOEN-
mandated project (Entwicklung von DCF- und LCCA-Datenbanken und Modellen für den Holzbau. Ökonomische Bewertung von biogenem CO2 im Holzbau und Integration in DCF und LCCA), which was finalised in November 2019 (Final report as of Jan. 2020 not publicly available). The pre-study on timber buildings “Immobilienwirtschaftliche Lösungsansätze zur Ausschöpfung des Holzbaupotenzials.” is available under : www.bafu.admin.ch/bafu/de/home/themen/wald/fachin-formationen/strategien-und-massnahmen-des-bundes/aktionsplan-holz/pro-jektuebersicht-und-ergebnisse-des-aktionsplans-holz0/ergebnisse-klimagere-chtes-bauen.html
2 Hellweg, S. and Canals, L.M.i. (2014). Emerging approaches, challenges and opportunities in life cycle assessment. Science, Vol. 344 (6188) : p. 1109–1113.
3 The authors used the software OpenLCA [see endnote 4] the database EcoInvent v3.5 [see endnote 5] and the evaluation method IPCC2013 [see endnote 6].
4 GD (2017). OpenLCA. The open source life cycle and sustainability assessment Software. Available at : http://www.openlca.org/.
5 Ecoinvent Association (2017). EcoInvent Database. Ecoinvent Association. Available at : http://www.ecoinvent.org
6 Edenhofer, O., et al.. (2014). Climate Change 2014 : Mitigation of Climate Change. Contribution of Working Group III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change. Cambridge, United Kingdom & New York, NY, USA.
7 Zea Escamilla, E., Habert, G., and Wohlmuth, E. (2016). When CO2 counts : Sustainability assessment of industrialized bamboo as an alternative for social housing programs in the Philippines. Building and Environment, Vol. 103 : p. 44–53.
8 Bundesamt für Umwelt BAFU, Abteilung Klima (2018). Faktenblatt Wirkungs-abschätzung und Evaluation der CO2-Abgabe auf Brennstoffe. Bern, Switzerland.
9 Fernandez, P. (2017). Valuing companies by cash flow discounting : ten methods and nine theories. Managerial Finance, Vol. 33 (11) : p. 853–876.
10 UNFCCC (n.d.). The Paris Agreement. Available from : https://unfccc.int/pro-cess-and-meetings/the-paris-agreement/the-paris-agreement
Figure 31 :PROSPECTIVE SCENARIOS : (I) ONE-TIME CARBON CREDIT PAYMENT AND (II) YEARLY CARBON CREDIT PAYMENT
25
20
15
10
5
0
Percentage of change (%)
Prospective scenarios
0.4
26.7
CO₂ credit, CO₂ footprint one-time payment
CO₂ credit, CO₂ footprint yearly payment
30
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 76
This chapter explains the practice of blended finance – the mixing
of public and private capital – and outlines its specific application
to climate finance. Of all transactions that use blended finance, cli-
mate finance is clearly the most important. This outcome is driven
by factors such as a successful investment track record, improved
technology and increased government support.
However, two critical areas need to be addressed to reach more
scale. First, pipeline development must be improved to create more
investible projects. Second, investment products need to be adapted
in terms of size, liquidity and currency to attract international and
local institutional investors. Finally, blended finance cannot
replace macroeconomic and structural reforms to support private
investment in climate finance. Real sector change is required.
What is blended finance ?A new trend has taken hold in the development community :
blended finance or blending. The Economist calls it a ‘cocktail of
public, private and charitable money’.1 This cocktail is not an asset
class but rather a structuring approach, mixing different pools of
capital with different return expectations. While public capital may
or may not have a commercial return expectation, private capital
expects commercial returns, and charitable capital may seek capital
preservation or is prepared to assume losses.
Convergence, a blended finance platform sponsored by the
Canadian government, has identified four types of common blend-
ing structures (see Figure 32). In these structures, the public or phil-
anthropic capital typically helps to reallocate risk by accepting
lower returns, providing a guarantee or a grant for project prepara-
tion or design phase. Blended finance is also employed on the
return side in so-called results-based financing schemes (e.g. in
impact bonds) to pay for a specific social or environmental outcome.
Today’s interest in the approach is driven by the UN Agenda
2030 and its Sustainable Development Goals (SDGs). The estimated
SDG investment gap in developing countries is USD 2.5 trillion per
annum ; for SDG 13 Climate Change the annual gap is estimated at
USD 440–780 billion.2 How can the existing pool of Official Devel-
opment Assistance (ODA) raise the overall volume of financing for
development and climate objectives by mobilising private capital ?
That is where the concept of blended finance comes into play.
When to use blended finance from a public perspective ? If public capital is put into one of the four blending structures, this
usually implies some form of subsidy. Hence, the public benefit
must exceed the return to private investors. That can be the case
when there are market failures (e.g. overcoming the gap between
actual and perceived risk), information asymmetries or externali-
ties not yet priced into the market. The latter argument is typically
used to justify blending in climate finance transactions.
Blended finance should not end up subsidising private profits
and it should not replace government policy (or reward a policy fail-
ure). A blended finance solution needs to be a realistic remedy to a
problem only after other policy options have been exhausted. For
example, it has been suggested that donor funds could top up elec-
14 BLENDED FINANCE Building on Partnerships for Effective Climate Finance
Blended finance is the concept of using capital from public or philanthropic sources to de-risk transactions, which helps mobilise private capital into investments aiming to achieve targeted impacts.
Traditionally employed in development finance, blended finance has proven to work well in climate finance, especially for renewable energy and climate mitigation projects, due to its robust track record, linked project cash flows and government support.
LUKAS SCHNELLERDeputy Head, Private Sector Development, Economic Cooperation and Development,Swiss State Secretariat for Economic Affairs
SWISS SUSTAINABLE FINANCE 77
14 BLENDED FINANCE Building on Partnerships for Effective Climate Finance
Blended Finance
tricity tariffs to offer appropriate returns to private investors, i.e. to
make a project bankable. This type of blending is very questionable
from a public policy perspective. A better solution would be to first
adjust tariffs and then use public capital to support the poor through
targeted subsidies, rather than providing a subsidy to investors.
Hence, the OECD and Development Finance Institutions (DFIs)
have adopted general principles regarding the use of blended
finance to avoid market distortions.3 They stress principles like
minimum subsidies and exit from donor support. The goal is to
achieve a self-sustaining market.
Data for benchmarking to identify an efficient mix for the
blended finance cocktail is only now emerging. Based on existing
data, three key characteristics of a ‘good’ blended finance transac-
tion include :
— A blended finance transaction should generate a positive envi-
ronmental and/or social impact. This impact is often expressed
in terms of the SDGs. In that sense, blended finance is related
to impact investing. However, there is not yet a single and defi-
nite taxonomy of impact and there tends to be more consensus
on the process of impact investing than on the content.4 Yet
climate finance is quite advanced in its content, thanks to sub-
stantial efforts to develop a taxonomy or classification system
on what is green and what is not green.5
— A blended finance transaction should mobilise private capital
that would otherwise not have been available, also referred to
as additionality. If there is no additionality, by definition, there
is no mobilisation. While this sounds straightforward, meas-
uring mobilisation can be rather difficult. What should be
avoided, however, is to compare leverage ratios only. While
these help to get a notion of efficiency, they do not say much
about additionality and may vary considerably depending on
the type of transaction, objective and context.
— A blended finance transaction should achieve a positive finan-
cial return. While these returns range from concessional to
market rate, the idea is to catalyse a market that is self-sustain-
ing, i.e. will not require further subsidies. This perspective is
important to mobilise private investors and to move from indi-
vidual transactions to transforming markets, thus generating
scale.
How is blended finance applied to climate finance ?While blended finance remains a niche compared to the size of
financial markets, it has worked well in the field of climate finance.
Total financial volumes for blended finance are estimated to range
from USD 60 billion 6 to 140 billion 7 of blended finance transactions.
According to Convergence, energy accounts for roughly 45 % or over
220 blended finance transactions, with a strong focus on renewable
energy and energy efficiency projects. The OECD similarly finds that
60 % of the surveyed blended finance investment vehicles are
mapped to climate finance particularly geared towards climate mit-
igation rather than adaptation. Investor surveys also confirmed that
blended finance helps to overcome some barriers associated with
climate finance.8
CONCESSIONAL DEBT OR EQUITY
GUARANTEE & RISK INSURANCE
DESIGN/PREPARATIONFUNDING GRANT
TECHNICAL ASSISTANCE GRANT
Public or philanthropic investors are concessional within the capital structure
Subordinate and/or junior terms compared to coinvestors
Risk reduction tools that protect investors against capital losses
Grant funding that supports costs and activities that lead to bankability of projects
Funds to supplement the capacity of investees
CAPITAL STRUCTURE CAPITAL STRUCTURECAPITAL STRUCTURE CAPITAL STRUCTURE
Senior Debt Senior DebtSenior Debt
Senior DebtFlexible Debt Equity
Gua
rant
ee
Gra
nts
EquityEquity Equity
Junior Equity
TA FACILITY
Grants
Source : Convergence, 2018
Figure 32 :MAIN ARCHETYPES AND INSTRUMENTS USED IN BLENDED FINANCE
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 78
Several factors have driven this outcome :
— Blended finance solutions require projects with a positive
cash-flow from operations to pay back investors. Renewable
energy and energy efficiency projects – SDG13 – often have this
characteristic. This has proven to be more difficult to find in
sectors such as water and sanitation. Blended finance can work
for some, but not for all SDGs.
— Renewable energy technology has become very competitive.
With production prices as low as USD 6 cents per kWh, it beats
CO2-intensive alternatives even in developing countries.
Renewable energy solutions are also a cost-efficient alterna-
tive for providing energy to remote areas instead of expensive
grid expansion.
— There is a positive investment track record emerging, thanks to
substantial efforts by governments and development banks
over the past decade to set up the required frameworks to
attract private investments in energy projects. These frame-
works have proven to work relatively well, although unex-
pected changes, for instance in off-take agreements, remain a
key risk.
— Governments, in compliance with international commitments,
have stepped up their support. The Swiss Federal Council, for
instance, has emphasised the role of mobilising blended
finance in reaching its climate finance targets. 9
— Finally, the externalities in the field of climate change are more
clearly identifiable and methodologies are more advanced
than in other impact investing markets. The Greenhous Gas
Emission (GHG) indicator provides a relatively objective
benchmark to justify a public subsidy in a transaction.
BLENDED FINANCE PROJECT
AMUNDI PLANET EMERGING GREEN ONE10
ACCESS TO CLEAN POWER FUND BY RESPONSABILITY 11
PRIVATE INFRASTRUCTURE DEVELOPMENT GROUP (PIDG)12 : THE FIRST KENYA SHILLING GREEN CORPORATE BOND, CROSS-LISTED ON THE LONDON STOCK EXCHANGE
GOALS
To facilitate the financing of the energy transition through the creation and development of a green bond market in emerging and developing countries. With over USD 1.42 bn, it is the largest emerging market green bond fund.
To provide debt financing to fast-growing companies, which promote access to households and companies through decentralised renewable energy solutions in Africa and Asia.
To finance the construction of green-certified purpose-built student properties to create clean, safe and affordable accommodation for 5,000 students in Nairobi.
BLENDING ELEMENTS
Type I : IFC and other multilateral development banks (MDBs) provide a credit enhancement in the form of a first loss or junior tranche position, helping attract institutional investors, pension funds and insurance companies at scale.Type IV : The technical assistance programme (implemented by IFC) supported by Luxembourg, Sweden and Switzerland supports the development of green-bond policies, builds capacities for local financial intermediaries to issue green bonds and helps countries to implement the Green Bond Principles.
Type I : Shell Foundation and IFC, on behalf of the Clean Technology Fund, provide a junior first loss tranche. IFC, foundations and other commercial investors provide funding in the senior tranches. Type IV : The Technical Assistance Facility, supported by a foundation and Switzerland, strengthens the operational capacity of potential or invested companies in order to ensure sustainable practices and support impact.
Type II : PIDG provides a 50 % local currency credit guarantee.Type III : A partial returnable grant by the PIDG Technical Assistance Facility helping to contribute towards the costs of the loan note issue, which created a significant enabling effect for this transaction.Uses donor-supported market infrastructure : The IFC Excellence in Design for Greater Efficiencies (EDGE) for the green certification.13 EDGE has been built with donor support, including from Switzerland, over the past years and is accessible to the entire market.
Table 9 :EXAMPLES OF BLENDED FINANCE PROJECTS FOR CLIMATE FINANCE
SWISS SUSTAINABLE FINANCE 79Blended Finance
How to increase climate finance via blended finance ?There is room for further scaling-up of climate investments using
blended finance. With a median of USD 90 million, climate finance
transactions with blending are already relatively large and therefore
ready to scale up. Beyond a traditional climate infrastructure lens,
there is also a lot of untapped potential in resource-efficient pro-
duction in pursuit of SDG 8 Decent Work and Economic Growth.
However, there are some limitations to the approach. First,
blended finance can address some, but not all risks. It works very
well for reallocating financial risks but not for other risks such as
sponsor (e.g. integrity), market and macroeconomic risks. To
address these risks governments need to undertake policy and
investment climate reforms. Second, blended finance projects need
to be calibrated carefully so as not to distort markets, otherwise they
would lose their catalytic quality. That is important to keep in mind,
particularly as climate technology improves and costs decrease.
In order to reach more scale in relation to blended finance and
climate finance, there are two key areas, relating to lack of investible
projects and investment products, to be addressed :
— Attention needs to shift to a more efficient and coordinated
effort in project pipeline development. There has been good
progress in de-risking investment vehicles, but investible pro-
jects remain scarce. Investible projects refer to projects, which
are compliant with ESG and integrity requirements, free of cor-
ruption, financially sound and climate compatible. Without a
larger universe of investible projects, an increased volume of
blended finance cannot be reasonably absorbed.
— Investment products and structures need to be adapted. Criti-
cal obstacles to tap into the capital of larger institutional inves-
tors are ticket size, liquidity and currency. Many funds remain
too small to absorb large investment tickets that institutional
investors want to place. New ways to aggregate small projects
and reduce costs are required. Most of the products are in pri-
vate markets characterised by limited liquidity. If there is no
exit, investors have restricted entry. Developing country cur-
rency risk is shunned, which favours a hard currency solution
with relatively expensive hedging. Dollar-denominated fund-
ing is not necessarily the ideal source of funding from a devel-
opment perspective (e.g. currency misalignment). Local cur-
rency options to tap into domestic pools of capital are an
alternative that would also foster a more balanced growth path.
There is still a lot of room for growth to cover the climate financing
gap. In order to achieve growth, blended finance can certainly be a
valuable tool, but the barriers or perceived barriers described above
need to be overcome. Actors can proactively sponsor initiatives to
improve climate project assessment, facilitate best practice in cli-
mate impact disclosure and reduce investment barriers through
blended finance vehicles.
1 The Economist (23 April 2016). Trending: blending. The fad for mixing public, charitable and private money. Available at : www.economist.com/finance-and-economics/2016/04/23/trending-blending
2 UNCTAD (2019). SDG Investment Trends Monitor. Available at : https://unctad.org/en/PublicationsLibrary/diaemisc2019d4_en.pdf
3 OECD Blended Finance Principles and IFC Blended Concessional Finance Principles for Private Sector Projects
4 See for instance the IFC’s Operating Principles for Impact Management : www.impactprinciples.org/
5 For example the EU Taxonomy or the Climate Bonds Initiative (CBI)
6 Basile, I. & Dutra,J. (2019). Blended Finance Funds and Facilities : 2018 Survey Results. OECD Development Co-operation Working Papers, No. 59. OECD Publishing : Paris. https://doi.org/10.1787/806991a2-en
7 Convergence (2019). The State of Blended Finance 2019. Available at : www.convergence.finance/resource/13VZmRUtiK96hqAvUPk4rt/view. The Convergence dataset looks at a broader universe of transactions, while the OECD survey is limited to collective investment vehicles.
8 In the report Blue Orchard Report Rethinking Climate Finance, results show that as many as 80 % of survey participants consider blended finance structures as a suitable instrument to overcome investment barriers in climate finance. See : www.blueorchard.com/wp-content/uploads/BlueOrchard-Academy-study_Rethinking-Climate-Finance-1.pdf
9 Bundesrat (10 May 2017). Internationale Klimafinanzierung. Bericht des Bundesrates in Erfüllung des Postulats des Aussenpolitischen Kommission des Nationalrats 15.3798 vom 2. Juli 2015. Available at : www.newsd.admin.ch/newsd/message/attachments/48209.pdf
10 Amundi Asset Management (16 March 2019). IFC and Amundi successfully close world’s largest green bond fund. Available at : www.amundi.lu/professional/Local-Content/News/IFC-and-Amundi-successfully-close-world-s-largest-green-bond-fund
11 responsAbility (14 January 2020). Press Release : responsAbility launches USD 200 m climate fund. Available at : www.responsability.com/en/responsability-launches-usd-200-m-climate-debt-fund
12 PIDG (n.d.) Homepage. Available at : www.pidg.org/
13 See : www.edgebuildings.com/
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 80
IntroductionPrivate capital markets make investment decisions according to
expected risks and returns. While this paradigm has led to an effi-
cient allocation of capital for many purposes, some of the largest
societal challenges struggle to attract financing because investors
have few incentives to consider societal benefits or avoided cost. In
economics jargon, private investors seldom consider negative
externalities, such as carbon emissions, or positive externalities,
such as knowledge and experience creation. For instance, private
capital markets have long hesitated to finance novel low-carbon
technologies, such as solar photovoltaics (PV) or wind.1 The main
obstacles to financing these unknown technologies included the
lack of a technology track record, of data, of internal expertise and
of a network of support services, such as law firms or technical advi-
sories.2
Research has shown that public banks, such as state invest-
ment banks (SIB), can be an effective tool to mobilise private invest-
ment.3 In practice, the definition of SIBs varies. Here, we use a com-
mon definition based on three characteristics. SIBs are majority
public-owned, have a mandate to pursue a socioeconomic mission
and focus on geographical areas or market segments according to
their mandate.4 In these markets, SIBs then use repayable financial
instruments to enable investments aligned with their mission.
In doing so, SIBs have typically played three key roles.5 First,
they de-risked projects via guarantees and other instruments or pro-
vided direct investment capital to projects aligned with their man-
date. SIBs have often co-financed early-stage projects, which gener-
ated the much-needed experience to crowd-in private investors.
Second, through that process, they provided crucial knowledge (e.g.
tools and standards) to the market through their specialised risk
assessment and due diligence teams. Third, in providing these
assessments, the market attributed a signalling role to the SIBs’
actions. Put differently, in some instances it was enough that SIBs
approved a project from a technical point of view, without being
involved as an investor, for private actors to invest. For instance,
SIBs have played a crucial part in designing early bankable offshore
wind projects that were considered too risky and too unfamiliar for
the private sector to invest in without a public actor.6 In providing
the technical due diligence and setting up a viable financing struc-
ture in novel investment fields lacking the volume to make it prof-
itable for private investors to build up internal teams, SIBs have
often been successful in attracting private finance without taking
first loss or junior tranches.
State investment banks in practiceMany regional, national and international public entities have been
operating or plan to operate SIBs. Figure 33 gives an overview of
existing SIBs with a green mandate.
15 GREEN STATE INVESTMENT BANK An Effective Climate Policy Tool
Research has shown that public banks, such as state investment banks (SIB) with a clear mandate, can be an effective tool to mobilise private investment.
SIBs typically have three key roles : de-risking projects or providing direct investment capital, contributing crucial knowledge through specialised risk assessment and due diligence teams, and providing signals to the market.
There are multiple examples of SIBs with a green man-date across the world. Switzerland could build on these experiences and leverage domestic finance skill sets to develop a Swiss SIB model for climate investments. Copyright © Free Vector Maps.com
DR FLORIAN EGLIResearcher, Energy Politics Group, ETH Zurich
SWISS SUSTAINABLE FINANCE 81Green State Investment Bank
For instance, European Commission President Ursula von der Leyen
has revealed her plan to transform the European Investment Bank
(EIB) into a Climate Bank. French President Emmanuel Macron pre-
viously championed the idea, and it is likely that the project will
re-activate momentum in Europe for similar plans (e.g., the Euro-
pean Green Deal). First results on a European level include the new
EIB strategy, which brings to an end fossil fuel energy financing by
2021 and unlocks EUR 1 trillion for climate action up to 2030.9 Other
European countries have long experiences with SIBs (e.g. Germany)
or they have privatised previously public SIBs (e.g. United Kingdom).
The case of the German KfW is described in more detail in the box
below. The United Kingdom founded its Green Investment Bank in
2012 and capitalised it with GBP 3 billion to mobilise private capital
for low-carbon projects. In 2017, Macquarie Group acquired the
bank and turned it into the first large-scale private green investment
bank (Green Investment Group Ltd.). On a smaller scale, Scotland
and New Zealand are currently setting up their own SIBs as well.
Scotland plans to have its bank operational by 2020 and committed
GBP 2 billion over 10 years to capitalise the bank. The New Zealand
Green Investment Finance Ltd. was incorporated in April 2019 with
an initial government capitalisation of NZD 100 million. Both exam-
ples demonstrate that green banks are a tool used by small coun-
tries too.
In the United States, SIBs remain a regional phenomenon to
date. At least eight federal states currently run banks or bank-like
funds with green mandates.10 The scope and mandates vary sub-
stantially from larger state-wide SIBs, such as the Connecticut
Green Bank or the New York Green bank, to smaller regional entities
Source : Author’s illustration. Note : The map includes the most prominent green SIBs 7 | 8 and all SIBs that are members of the Green Bank Network, the Coalition for Green Capital and the American Green Bank Consortium.
Copyright © Free Vector Maps.com
Figure 33 : EXISTING AND PLANNED SIBS WITH A GREEN MANDATE
Regional SIB
Planned regional SIB
National SIB
Planned national SIB
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 82
such as the Montgomery County Green Bank or the Baltimore Cli-
mate Access Fund, both in Maryland. Finally, there is also an emerg-
ing national debate in the United States around a Federal Green
Bank or significant state-led climate investments. Experiences from
other countries indicate that the United States may have substantial
opportunities to create new jobs with a smart public investment
strategy to push new technologies.13
Moreover, there are concepts for more specialised SIBs with
green mandates too. For example, realising low-carbon projects or
climate adaptation projects in cities requires specialised knowledge
that national or international green banks sometimes cannot pro-
vide. Given the spread of urbanisation, the need for city-level pro-
ject creation and financing structures may increase in the future.
Responding to this need, a recent working paper proposed a Green
Cities Development Bank.14
Conclusion and opportunities for SwitzerlandSIBs with a green mandate are a growing phenomenon and their
set-ups differ widely. Some have local business creation mandates,
while others put their emphasis on international finance. These set-
ups are versatile and can adapt over time, responding to political
priorities (see the history of KfW). In general, SIBs have a good track
record, can borrow at low cost from international capital markets
due to their government guarantees, and operate on an economi-
cally viable basis – albeit not with the goal of maximising profit. In
the case of the United Kingdom, the green investment bank had
explicit revenue targets (3.5 % minimum) and was acquired by a pri-
vate investor after just five years of operation. Besides being effec-
tive investment vehicles for societal priorities, SIBs often gain sup-
port across the political spectrum. While in the United States, they
are typically founded when Democratic governments are in charge
(7 out of 8), the Scottish SIB received unanimous approval from the
Scottish Parliament’s Economy, Energy and Fair Work Committee,
the UK green investment bank was founded with bi-partisan sup-
port and the German KfW has been used as a policy tool over the
past 70 years irrespective of the government in charge.
The German KfW and its changing missions
In 1948, Germany founded the Kreditan-
stalt für Wiederaufbau (KfW), which today
is one of the largest SIBs 11. Since 2000, KfW
has played an instrumental role in imple-
menting the German energy transition,
providing low-cost renewable energy tech-
nologies to the world – a prime example of
positive spillovers. Initially, KfW was the
main institution for disbursing the United
States Marshall plan funding to rebuild
European infrastructure and provided
credit at discounted rates. In 1961, the man-
date of the bank changed for the first time
and its operations were extended abroad as
part of the German development coopera-
tion, co-financing large projects such as the
Bosporus Bridge in Istanbul. Over time,
KfW has built up a strong reputation and
received an AAA rating in 1986, which it has
kept ever since and which allows it to raise
money on the USD capital market at low
rates. 1989 marks another turning point for
KfW’s activities. After the reunification of
East and West Germany, KfW became a key
institution for disbursing credit to busi-
nesses, local administrations and house-
holds. With the decision of the German
government to support the deployment of
renewable energy technologies from 2000
onwards, KfW was transformed into one of
the largest green SIBs. In 2012 for example,
KfW co-financed 94 % of German wind
parks, in 2014 it issued a green bond for the
first time and by 2018 it had become one of
the largest green banks globally.12
KfW demonstrates how a mission-ori-
ented public bank can be an effective tool
for implementing a variety of public policy
goals using a market-based logic. It is 100 %
publicly owned (80 % federal, 20 % states)
and has been used in development cooper-
ation, export assistance, business promo-
tion, student loans, renewable energy
deployment, energy efficiency and refugee
assistance.
SWISS SUSTAINABLE FINANCE 83Green State Investment Bank
While the Swiss Technology Fund is considered for Figure 33 because
it is mentioned by the OECD in Ref. 8, it fulfills only the first role of an
SIB. Building a fully operational SIB, beyond providing guarantees,
would present a two-fold opportunity for Switzerland. On the one
hand, Switzerland is struggling to achieve its climate targets.
Upcoming popular initiatives, such as the Gletscherinitiative, may
put further pressure on the government to act. An SIB – both domes-
tically and internationally – tailored to Swiss needs could be an
interesting proposition for liberals and social democrats alike to
advance the climate agenda. On the other hand, an SIB could lever-
age the existing expertise in the finance sector. Besides banking,
skills from insurance, reinsurance and commodity trading may
prove valuable in setting up a public-private SIB – perhaps based on
the existing technology fund.15 Experiences in other Western coun-
tries point to an interesting opportunity to exploit. The good news
is that institutional support for setting up SIBs and green banks is
growing, as the recently launched “Green Bank Design Platform”
demonstrates.16 Switzerland could tap into this easily accessible
knowledge pool in order to develop ideas for a Swiss model.
1 Mazzucato, M. (2013). Financing innovation : Creative destruction vs. destructive creation. Industrial and Corporate Change 22, 851–867.
2 Egli, F., Steffen, B., Schmidt, T.S. (2018) A dynamic analysis of financing conditions for renewable energy technologies. Nature Energy 3, 1084–1092 .
3 Steffen, B., Egli, F., Schmidt, T.S. (forthcoming, 2020). The role of public banks in catalysing private renewable energy finance. In Donovan, C. (Ed) Renewable Energy Finance : Powering the Future. London, UK : Imperial College Press.
4 Mazzucato, M., MacFarlane, L. (2019) Patient Finance for Innovation-Driven Growth. IIPP Policy Brief. Available at : https://www.ucl.ac.uk/bartlett/pub-lic-purpose/sites/public-purpose/files/180911_policy_brief_patient_finance_april_2019_edit.pdf
5 Geddes, A., Schmidt, T.S., Steffen, B. (2018). The multiple roles of state investment banks in low-carbon energy finance : An analysis of Australia, the UK and Ger-many. Energy Policy. 115, 158–170.
6 Ibid.
7 Macfarlane, L., Mazzucato, M. (2018) State investment banks and patient finance : An international comparison. UCL Institute for Innovation and Public Purpose, Working Paper Series (2018–01). Available at : www.ucl.ac.uk/bartlett/pub-lic-purpose/wp2018-01
8 OECD & Bloomberg Philanthropies (2015). Green Investment Banks. Policy Perspectives. Paris, France.
9 EIB (14 Nov. 2019). EU Bank launches ambitious new climate strategy and Energy Lending Policy [Press Release]. Available at : www.eib.org/en/press/all/2019-313-eu-bank-launches-ambitious-new-climate-strategy-and-energy-lending-policy
10 These states are : California, Colorado, Connecticut, District of Columbia, Hawaii, Maryland, Nevada, Rhode Island. In Canada, the state of Ontario is also in the process of setting up a Green Bank as part of its Climate Action Plan 2016–2020 using, among others, the New York Green Bank, as a blueprint.
11 The discussion of KfW milestones is based on the leaflet “Zeitstrahl 70 Jahre KfW (1948–2018)” available in the section “Geschichte der KfW” on www.kfw.de
12 Between 2012 and 2016, KfW invested $96 billion in energy efficiency, $21 billion in onshore wind, $8 billion in solar PV and $2 billion in offshore wind (excluding KfW IPEX offshore wind investments and private finance leveraged).
13 Sewerin, S. et al. (2019). The Green New Deal Should Focus on Economic Opportunities : Lessons from the German Energy Transition. Public Administration Review : Bully Pulpit Symposium.
14 Alexander, J., Nassiry, D., Barnard, S., Lindfield, M., Teipelke, R., Wilder, M. (2019). Financing the sustainable urban future. Working Paper 552. Available at : www.odi.org/sites/odi.org.uk/files/resource-documents/12680.pdf
15 See www.technologyfund.ch/
16 See https://greenbankdesign.org/
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 84
To avoid the most dangerous consequences of global warming, the
Intergovernmental Panel on Climate Change (IPCC) is calling for
the “rapid and unprecedented” transformation of the systems that
constitute modern civilisation : energy, land use, infrastructure,
industry, and cities.1 This implies that we must change not only the
technologies used to extract, convert, allocate, and recycle resources
within our economy. We also need to shift individual and collective
values and behaviours, and create a balance of political, cultural and
institutional power in society.2
As financial capital is an important lever of change in
socio-technical systems—such as national economies, industrial
supply chains, regional transportation systems and urban built
environments—the way money accumulates and flows within these
systems has a significant impact on our ability to reduce green-
house gas emissions and build a climate-resilient society.
Given the complex adaptive nature of these systems 3, achieving
the type of transformation the IPCC is calling for requires more than
a portfolio reallocation towards more responsible or more sustain-
able companies and projects. It requires an entirely new investment
logic ; one that deploys capital with a different intent and mindset,
and with different methodologies, structures, capabilities and deci-
sion-making frameworks.
The limitations of today’s financial industry in transforming systemsToday’s financial industry is ill-positioned to finance transforma-
tional change for at least four reasons. First, capital is allocated to
maximise short-term gains.4 Transformational change, however,
often requires patient, long-term capital.5 Second, most capital
movement happens in secondary markets. In contrast, transforma-
tional change requires direct investments in infrastructure, prod-
ucts and services—hence in the real economy where emissions occur
and resilience emerges. Third, the deepest pockets in our financial
system are risk-averse—only a small fraction of the capital market
has a risk appetite geared to the notion of transformative change
(e.g. venture capital). For example, the insurance sector is the larg-
est institutional investor group in Europe, managing close to EUR 10
trillion, or 60 % of the EU’s GDP.6 Yet, the fiduciary duties of insur-
ance companies impose a bias of prudence on their investment
strategies, which acts to preserve the status quo. Finally, investors
assess and select investments along a single asset paradigm—one
16 TRANSFORMATION CAPITAL A Systemic Investment Logic
Climate change is a systemic problem. To address it, the IPCC calls for the transformation of the socio- technical systems that constitute modern civilisation.
The axioms, paradigms and structures of today’s capital markets mean that traditional investment approaches are ill-suited to drive this type of change.
This chapter describes a systemic investment logic at the intersection of systems thinking and finance prac-tice. Its hallmarks include new notions of value, a stra-tegic blending paradigm, the deliberate engagement of tipping points and alignment with levers of change controlled by other actors in society, such as policy-makers and philanthropists.
DOMINIC HOFSTETTERDirector of Capital and Investments, EIT Climate-KIC
DR FLORIAN EGLI Researcher, Energy Politics Group, ETH Zurich
SWISS SUSTAINABLE FINANCE 85Transformation Capital
stock, one bond, one project—and without considering the strategic
synergies across investment opportunities.
As a consequence, the world faces a massive investment gap
and reallocation challenge to achieve a transition to a sustainable
society. While estimates of that gap vary by source, the consensus is
that it reaches into the trillions of euros per year.7 We argue that this
gap will not disappear by maintaining the current investment logic.
Nor will it be addressed by “sustainable finance” models seeking
incremental adjustments to the traditional investment orthodoxy,
such as ESG investing or impact investing.
Towards a paradigm shift in deploying capitalIntroducing the concept of systems thinking into the discipline of
investing leads to a need to re-conceptualise almost all existing par-
adigms of capital deployment.
An important starting point is to evolve our notion of value to
consider the context of our living conditions. The logic is simple—
possessing financial wealth in a world that is economically, socially
and environmentally stable is more desirable than owning such
wealth in a world strained by extreme weather events, food system
failures, social unrest and forced mass migration. Once value is con-
textually enriched, investments in the real economy—as opposed to
secondary market transactions—become a strategic opportunity to
shape living conditions and make financial wealth more valuable.
Investors can influence the evolution of systems by construct-
ing strategic portfolios, blending multiple assets to maximise their
synergistic potential to affect systems change in respect to a specific
transformation agenda. What matters in constructing such strate-
gic portfolios is not so much an individual asset’s merits, but its
potential to unlock or accelerate transformational effects in combi-
nation with other assets in the portfolio. This implies a move away
from the single asset paradigm to a strategic blending paradigm.
Building strategic portfolios requires an understanding of the
actors and forces present within a system, of the pathways a system
can take to transition to a new state and of the dynamics that indi-
vidual investments—and the portfolio as a whole—can unleash.
Strategic blending is particularly effective when private-sector
investors forge investment partnerships with public sector actors
and when policy and regulation are adjusted to create enabling con-
ditions for the system to transform itself.
By attempting to create new markets in this way, systemic risk—
in the meaning of Harry Markowitz’s Modern Portfolio Theory—is no
longer purely exogenous to the decision of investors but partially
rests within their sphere of influence. Portfolio construction thus
becomes more than just a risk diversification exercise. Conse-
quently, investment success can now be reconceptualised not only
along financial dimensions but also in consideration of the scale
and direction of the transitional effects that investments trigger
within a system.
Engaging tipping points strategicallyThat still leaves the question of what to invest in. Not all interven-
tions in a system—whether investable or not—have the same poten-
tial to catalyse change. Therefore, it is critical to identify sensitive
intervention points—those places in the system where a relatively
small change can trigger outsize effects and where non-linear feed-
backs can act as amplifiers.8 The goal here is to lead a system to a
tipping point, after which the self-organising properties of a system
take control to direct it to its intended future state.
Today, there is scant practical experience in triggering tipping
points with real economy investments. However, there are well-doc-
umented cases that provide cues. Tipping points are best under-
stood for the trajectory of renewable energy costs. As has been doc-
umented in multiple different contexts, once economies of scale
and learning effects push these technologies down the cost curve,
their uptake accelerates significantly. Deployment policies that
incentivise demand–such as Germany’s renewable energy law for
solar power 9 or Norway’s point-of-purchase subsidy scheme for
electric vehicles 10—have been instrumental in enabling this devel-
opment. They create the necessary revenue certainty for new tech-
nologies to start large-scale production at a time when these tech-
nologies are still more expensive than their competitors.11 Systemic
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 86
investors can attempt to identify places in the system that are close
to such tipping points and deploy capital strategically to act on
these levers.
Where capital alone is not enough to reach these tipping
points, systemic investors should align themselves with actors
engaging other levers of change in the system such as policy and
regulatory frameworks, social norms and behaviours, skills and
capabilities, individual and collective narratives, and production
and consumption paradigms. The ultimate purpose of this approach
is to construct portfolios of multiple real asset investments within
a broader set of systems interventions, all designed for their collec-
tive, synergistic ability to generate transformative dynamics. In that
sense, systemic investing is a decision-support framework for design-
ing and combining the instruments described in this publication :
green bonds, direct investments in companies and projects, energy
efficiency mortgages and sustainable real estate investments, to
name just a few.
Mainstreaming systemic investment principlesSystemic investing presents an opportunity to create public goods
and private value in a symbiotic relationship. This provides an
impetus for government to be at the forefront of incorporating sys-
temic investment considerations when developing public spending
or capital raising plans. Governments should always make sure
their own investment activities as well as those of private sector
actors are well coordinated with other, non-investment-related
interventions. Similarly, there is an opportunity for progressive cap-
ital—philanthropic funds, impact investors, family offices and the
like—to act as first movers, thereby accelerating the mainstreaming
of a system-transformative investment logic.
What is needed to bring Transformation Capital to life is fur-
ther conceptual work combined with real-world prototyping. Above
all, however, the world needs asset owners with ambitious transfor-
mation agendas and the genuine intent to use their capital to create
a better future.
SWISS SUSTAINABLE FINANCE 87
1 IPCC (2018). Summary for Policymakers. In : Global Warming of 1.5°C. An IPCC Special Report on the impacts of global warming of 1.5°C above pre-industrial levels and related global greenhouse gas emission pathways, in the context of strengthening the global response to the threat of climate change, sustainable development, and efforts to eradicate poverty [Masson-Delmotte, V., P. Zhai, H.-O. Pörtner, D. Roberts, J. Skea, P.R. Shukla, A. Pirani, W. Moufouma-Okia, C. Péan, R. Pidcock, S. Connors, J.B.R. Matthews, Y. Chen, X. Zhou, M.I. Gomis, E. Lonnoy, T. Maycock, M. Tignor, and T. Waterfield (eds.)]. World Meteorological Organization, Geneva, Switzerland, pp. 32.
2 Ibid. Annex I : Glossary [Matthews, J.B.R. (ed.)]. Available at : www.ipcc.ch/sr15/chapter/glossary/
3 Beinhocker, E. (2007). The Origin of Wealth : The Radical Remaking of Economics and What it Means for Business and Society. Boston : Harvard Business Review Press.
4 Haldane, A.G. (2015). The Costs of Short-termism. The Political Quarterly, 86 (4), 66–76. https://doi.org/10.1111/1467-923X.12233
5 Mazzucato, M., MacFarlane, L. (2019). Patient Finance for Innovation-Driven Growth, IIPP Policy Brief. London, United Kingdom.
6 High-Level Expert Group on Sustainable Finance (2018). Financing a Sustainable European Economy. Brussels, Belgium : European Commission.
7 Fetherston, J. (2018). How to Close the $2.5 Trillion SDG Investment Gap. BCG Centre for Public Impact. Available at : www.centreforpublicimpact.org/close-the-sdg-investment-gap-open-letter/
8 Farmer, J.D., et al. (2019). Sensitive intervention points in the post-carbon tran-sition. Science, 12 April 2019 : Vol. 364, Issue 6436, pp. 132–134.
9 Bundesministerium für Wirtschaft und Energie (n.d.). Erneuerbare-Energien- Gesetz (EEG). Available at : www.erneuerbare-energien.de/EE/Navigation/DE/Recht-Politik/Das_EEG/das_eeg.html
10 Norwegian Electric Vehicle Association (Norsk elbilforening) (n.d.). Norwegian EV policy. Available at : https://elbil.no/english/norwegian-ev-policy/
11 Polzin, F., Egli, F., Steffen, B. & Schmidt, T. S. (2019). How do policies mobilize private finance for renewable energy?—A systematic review with an investor perspective. Applied Energy, 236, pp. 1249–1268.
Transformation Capital
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 88
17 SWISS ENVIRONMENTAL LEGISLATION A Brief History and Analysis of Effectiveness
IntroductionIn order to implement financing instruments for a low-carbon
economy, local conditions and existing frameworks for the entire
economy – not just the financial industry – need to be considered.
The following overview of the history of Swiss environmental poli-
cies can thus be helpful for both Swiss investors and policymakers.
With 8.5 million inhabitants, Switzerland is a small country
that historically has had an open economy. The country is too small
to offer large markets for new technologies, which is why Swiss
companies usually take the role of suppliers for companies based in
neighbouring EU and other countries. This is reflected by an export
quota of goods and services that stood at over 65 percent in 2019.
Building on the polluter pays principle (PPP), Switzerland has in the past introduced a number of legislative meas-ures that use market signals to achieve the desired environmental outcomes. However, the implementation of effective environmental market-based instruments continues to be challenging and new tax incentives often fail to obtain political majorities.
Substantial improvements are expected with the revision of the Swiss CO₂ Act, which aims to halve GHG emissions by 2030 compared to 1990 levels. Nevertheless, in order to achieve the Swiss net-zero goal by 2050 further legislative action will still be necessary.
Although there are many Swiss companies that have developed
sophisticated environmental technologies, many of these solutions
are often not yet applied widely enough in the real world.
Moreover, Switzerland is a country devoid of any significant
raw materials. Large amounts of energy, metals, minerals, and food-
stuffs therefore have to be imported. Those imports leave consider-
able environmental impact abroad, where they contribute to cli-
mate change, loss of biodiversity, and water shortages. According to
the Swiss Federal Office for the Environment (FOEN) “ domestic
greenhouse gas (GHG) emissions decreased between 2000 and 2015.
This reduction was, however, partially offset by additional emis-
sions abroad. At around 14 tonnes of CO2-equivalents per capita in
2015, Switzerland’s GHG footprint was significantly above the Euro-
pean average. It is estimated that 0.6 tonnes per capita would be
within the planetary boundaries. ” 1
According to the National Inventory Report (NIR), Swiss GHG
emissions (emitted within Swiss borders) have fallen by 14 percent
since 1990 to 5.4 tons of CO2 equivalents per capita by 2018.2 This
number does not include emissions from shipping and aviation,
which actually grew by 84 percent since 1990.3 Kerosene is not sub-
ject to taxes, as neither VAT nor the CO2 levy have to be paid on it – in
contrast to other fossil fuels. However, in 2020 the bar was raised
after the revision of the new CO2 Act won a parliamentary majority
stipulating, amongst others, a plane ticket levy of CHF 30 to 120. The
Act will likely be subject to a national referendum.
Swiss environmental policy : focus on innovation In Switzerland, “ industry policy ” has historically been a taboo,
given a strong aversion to direct support of companies. This is an
important premiss for the structure of Swiss environmental policy,
which is built on a number of different instruments.
The polluter pays principle (PPP) is an important tenet of Swiss
environmental legislation. However, it can be tricky to win majori-
ties for new PPP-based levies or incentives in Switzerland. Even
small PPP- charges, such as waste disposal fees or CO2 levies that are
reimbursed to the population, are unlikely to pass a referendum
DR RUDOLF RECHSTEINERPresident Ethos Foundation
SWISS SUSTAINABLE FINANCE 89Swiss Environmental Legislation
unless they are properly explained and based on multi-party agree-
ments. In practice it is therefore difficult to enforce this principle,
as efficient as it may be.
Instead, promotion and financing of innovation is a key ele-
ment of Swiss environmental policy, as illustrated by the CHF 250
million spent every year by “ Innosuisse ”, the Swiss Innovation
Agency. In addition, the Swiss Federal Office for the Environment
(FOEN) provides a maximum of CHF 4 million to support new tech-
nologies helping to reduce pollution. A technology fund further
provides credit guarantees (max. CHF 25 million/year) to Swiss com-
panies whose products or activities offer CO2 reductions in Switzer-
land or abroad.
Prevalent environmental policy instruments Market economies spawn new products every day, while competi-
tion ensures that market participants work efficiently. However,
competition only works for costs paid for production goods such as
labour, material or capital. Externalities, so-called “ social and envi-
ronmental costs ” at the expense of third parties, are seldom priced
in correctly and hence not determined by market forces, nor do they
appear in expense statements or balance sheets.
Besides the conventional command-and-control approach
through rules and standards, legislative measures in environmental
policy therefore often use market signals to achieve the desired
environmental outcomes. Such market-based environmental policy
instruments aim to price externalities properly, improve market
efficiency, incentivise new business models and reduce environ-
mental damage. Pricing environmental costs leads to processes,
products and services being delivered in a more efficient way. If a
government decides to regulate, ration or tax externalities this may
also create opportunities for innovative financing instruments.
However, environmental policy instruments differ in terms
of the extent of internalisation they achieve, as illustrated in the
box on the right. In the long run, avoidance activities should be
auctioned to maximise cost reductions, as already practised by
different countries for renewable energy.
Difference in internalisation effects of various policy instruments
Rules and standards do not account for externalities. By
imposing limits for emissions, polluters are forced to
implement avoidance activities that they add to product
costs. Standards have a similar, but more gradual impact.
For both rules and standards, residual emissions are not
subject to any charges. Therefore, the incentive to reduce
unpaid residual externalities is modest and governments
are often reluctant to fully internalise remaining external-
ities, especially as imported products or services usually
stay uncharged.
Subsidies and tax reductions can deliver economic
incentives to protect the environment. But they come at a
cost, while ignoring the polluter-pays principle. They may
cheapen a product perceived as “ green ” and help accelerate
innovation – through tax deductions for renewable energy,
for example. Subsidies have the potential to reduce emis-
sions and negative environmental impacts. However,
incentives are limited in case governments fail to charge
polluting products for externalities. Support for innovation
often comes with a considerable regulatory risk because
subsidies may be slashed when political majorities change,
given that such schemes are expensive and state budgets
limited. Feed-in tariff systems in Europe were reduced or
cancelled retroactively in Spain, the Czech Republic and
Switzerland, and investors were hampered by retroactive
changes.
Levies, eco-taxes, liability provisions, emissions trad-ing and combined levies for minimum compensation
can be considered as preferable PPP solutions in environ-
mental policy and have the potential to trigger a high
degree of internalisation. However, their implementation
can be challenging. For many years, emissions trading in
the EU was insufficient due to a surplus of emission per-
mits, a weakness that was addressed when a market stabil-
ity reserve (MSR) was introduced to reduce the volume of
authorised emission permits.
Levies have a particularly strong innovation potential
when designed as “ feebates ” : A small fee on harmful prod-
ucts is used to finance avoidance activities, thereby ideally
initiating learning curves and cost reductions. Successful
examples are the German Renewable Energy Act (EEG) or
the Swiss waste reduction programmes, where learning
curves helped to encourage steep cost reductions for new
technologies.
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 90
Current Swiss environmental legislation Switzerland has over time successfully introduced some economic
instruments encouraging a positive effect on the environment,
mainly in the form of levies, emissions trading and feebates.
The levies for high sulphur heating oil (1997) and for volatile
organic compounds (VOCs, 1998) are two successful examples of
pure incentive mechanisms. The levies created an incentive to
reduce the use of high sulphur heating oil or products containing
VOCs. The resulting revenues, combined with the revenues from the
CO2 levy, are distributed equitably to the population by reducing
health insurance premiums.
While there is a limited number of pure emission reduction
incentive schemes, mixed systems are the dominant form of instru-
ment applied in Switzerland. Levies are often combined with ear-
marking and partial reimbursement of revenues, as is the case for
the “ carbon dividend ”.4 The goal of this approach is to reduce nega-
tive social effects by reducing the tax level, especially for low-in-
come households.
A number of environmental levies are fully earmarked, such as
waste levies that are used to cover recycling and waste disposal
costs. The performance-based heavy goods vehicle levy (HGVL) for
freight transport (2001), feed-in tariffs (FiT) for renewable energy
power generation (2008) and the CO2 levy on fossil combustibles
including a carbon dividend (2008) are prominent examples of
mixed systems and will be covered in the paragraphs below.
Performance-based Heavy Goods Vehicle Levy (HGVL)Switzerland has so far had difficulty reducing road traffic emissions.
The use of sport utility vehicles (SUVs) and other large vehicles and
motorbikes has grown massively over the past decades, which is
one of the reasons for CO2 emissions from road traffic remaining
high. Nevertheless, transport policy is on the move. Consumer
behaviour has gradually changed more recently towards more effi-
ciency, especially in urban and semi-urban areas, where abundant
public transport, active management of parking slots, the promo-
tion of bicycle traffic and car-free inner cities have provided suita-
ble incentives. Technological innovation in e-mobility may contrib-
ute to substantial CO2 reductions in road traffic in the near future.
Financial incentives can play a major role as well, as illustrated
below for the heavy goods transport sector.
A performance-based Heavy Goods Vehicle Levy (HGVL) was
introduced in Switzerland in 2001. It consists of a combined levy
charged on heavy transports within Switzerland. Vehicles with a
nominal weight of more than 3.5 tons pay a levy based on specific
air emissions, kilometres travelled and their nominal vehicle
weight. The main share of revenues is used for investments in and
support of border-to-border rail systems. The objective was to use
the revenues primarily to extend and refurbish the rail infrastruc-
ture for goods, which had positive side-effects on passenger rail-
way transport as well as on road traffic, thanks to reduced road
traffic and lower congestion. This transport policy, creating a
modal shift, won strong majorities in a series of voting on popular
initiatives.5
As a result of these policies, the number of truck transits fell
from 1.4 million (2001) to 0.94 million (2018). The railway system
improved and managed to gain market shares after its modernisa-
tion, unlike in other neighbouring countries (see Figure 34).
Feed-in tariffs for electricity from renewable sources Switzerland used to be a pioneer in solar energy. In 1991, the city of
Burgdorf (located in the Canton of Bern) was the first to introduce a
cost-covering feed-in tariff for photovoltaic power generation. As a
60
50
40
30
20
10
0
Figure 34 :ALPINE FREIGHT TRANSIT TRAFFIC: SHARES OF RAIL AND ROAD
Source: Federal Office of Transport 2020
Million tonsFRANCE SWITZERLAND AUSTRIA
Rail shipments incl. combined transport Road shipments
1980
1980
1980
1985
1985
1985
1990
1990
1990
1995
1995
1995
2000
2000
2000
2005
2005
2005
2010
2010
2010
2015
2015
2015
SWISS SUSTAINABLE FINANCE 91Swiss Environmental Legislation
result of considerable academic and private research and develop-
ment efforts, solar companies such as Solarmax (Biel, until 2015) or
Meyer Burger (Thun) were established in Switzerland. Some of them
have gained an international reputation for innovative products
such as PERC 6 solar cells that are now used globally.
Federal feed-in tariffs for “ clean electricity ” were implemented
in 2008 and financed through a surcharge on power from the grid. A
modest fee of 2.3 cents/kWh was confirmed by a referendum in 2017.
This was used to finance renewable power generation projects, with
a small part of revenues used for energy efficiency projects. Per cap-
ita consumption of electricity has been declining in Switzerland
(reduction of 12.1 % from 2006 to 2018) while primary energy con-
sumption from fossil fuels started to decline in 2010.7
In Switzerland, traditional large hydro power stations supply
55 to 60 percent of the total electricity consumed. New renewables
meanwhile have a share of close to 10 percent. More recently, solar
power investments have enjoyed accelerating growth. Due to on-go-
ing solar and wind power cost reductions, a 100 percent renewable
supply is within reach and could be achieved by 2030, provided ten-
der systems are included in the Swiss Energy Act in the course of the
2020 revision.
Combined CO₂ levy The CO2 levy is a pragmatic model first proposed in 1990. It took 18
years until the charge was levied, starting with small fees of just CHF
12 per metric ton of CO2 back in 2008. This corresponded to CHF 0.03/
litre of heating oil and CHF 0.025 per m3 of natural gas. Over ten years
the levy continuously increased to CHF 96 per metric ton of CO2.
In general, politicians paid much attention to ensuring that
levies do not impose any disadvantages on export industries. Pro-
duction facilities emitting greenhouse gases can be exempted from
the tax through special arrangements. Exempted companies, in
turn, must deliver an emission reduction commitment or become
part of the emissions trading system (ETS). A cooperation between
the Swiss and European ETS was achieved in 2017 allowing for a
transfer of emission allowances between the two systems. As a
result, Swiss companies can now buy emission rights of EU coun-
terparties. The ETS now includes aviation and thermal power plants,
in line with EU regulations.
The CO2 levy today is levied on 51 % of all CO2 emissions from
fossil combustibles, but not on transport fuels. Around 33 % of emis-
sions are regulated under the ETS and 16 % stem from companies
with target agreements.8 Where the levy is in place, two-thirds of
revenues are returned to the population through a reduction of
health insurance fees (the so-called “ carbon dividend ”). The CO2 lev-
ies paid by the industry are directly reimbursed through reductions
of payroll taxes. One-third of revenues is used for a building renova-
tion programme.
Domestic CO2 emissions from fossil heating combustibles
have fallen by 29.1 percent (2018) compared to 1990 (see Figure 35).
CO2 emissions from road transport fuels have risen by 2.9 percent,
not including the consumption of aviation fuel, which has increased
much more. This clearly shows that regulatory deficits persist.
No CO2 levy exists for fossil mineral inputs of materials such as
plastics or cement. In addition, companies exempted from CO2 lev-
ies agree on “ voluntary ” CO2 reductions ; these are not yet in line
with the Paris Agreement nor with the government’s “ net zero ” goal
by 2050. Finally, the levy is only charged on CO2 emissions from fos-
sil energies emitted within Swiss borders. The ecological footprint
caused by exploration and extraction activities or transport of oil,
coal and gas (including methane) are not charged. The same goes for
emissions incorporated in imported goods or services.
Figure 35 :CO2 EMISSIONS FROM COMBUSTIBLES AND FUELS IN SWITZERLAND
Source : FOEN 2020b
25
20
15
10
5
0
carbon emissions from automotive fuels carbon emissions from space heating legal thresholds for tax increases
1990
2000
2010
1992
2002
2012
1994
2004
2014
1996
2006
2016
1998
2008
2018
2020
million tons CO₂
23.4
15.516.0
16.8
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 92
Waste levies covering costs of recycling and waste disposal There is hardly any other country in the world producing more
municipal waste per resident than Switzerland.9 This is not surpris-
ing, given the high income level in Switzerland. The recycling rate
is at 53 percent and incineration is mandatory for residual waste
and mostly performed by waste-to-energy plants.
Since 1997, the Environmental Protection Act has given the
government the legal power to require companies to ensure recy-
cling, waste disposal treatment and prevention. The law gave pri-
vate-sector responsibility a high priority – with producers, import-
ers and vendors responsible for avoidance and recycling activities.
Recycling is declared a “ voluntary measure ”, yet, contrary to the
semantics, these activities are far from being voluntary ; it is up to
the business sector to decide the best way of complying with legal
standards. For product categories for which recycling or waste
management is not in place, the government can decide on sector-
specific or product-based fees.
High acceptance of combined or compensated leviesToday, the polluter-pays principle is applied most effectively in
recycling, wastewater treatment and waste disposal management.
After volume-oriented levies were introduced, buying behaviour
changed and waste avoidance activities were observed.
Earmarked and mixed levies were introduced successfully
where avoidance activities were perceived as credible and could vis-
ibly contribute to prevent ecological damage : carbon emission
reduction and air pollution control, energy efficiency programmes,
increasing renewable energy shares and more besides. However,
severe violations of environmental laws still occur, especially in the
areas of climate policy, drinking water protection, clean air policy
and biodiversity goals.
The implementation of market-based instruments in environ-
mental policy continues to be challenging. New tax incentives reg-
ularly fail in Switzerland when goals are not specified clearly
enough or when negative impacts for households with small and
medium income are not neutralised: A people’s initiative for “ inter-
nalisation of external costs of energy ” was rejected in a referendum,
with a record 92 percent of No-votes (2015) ; the initiative tried to
replace existing VAT with taxes on non-renewable energies. Long-
term fiscal distributional impacts were not transparent. A constitu-
tional norm for an energy incentive levy launched by the Swiss gov-
ernment failed across all party lines (2017) and was abandoned. It
was not clear what purpose the tax should serve. Renewable energy
was supposed to be taxed, while non-renewable fuels for transports
was touted to win exemptions.10
New milestones coming with the revision of the Swiss CO₂ Act In the past decade, Switzerland benefited considerably from the
German energy transition (“ Energiewende ”) and the drop in renew-
able energy prices. The Swiss energy transition itself however lags
far behind its German counterpart. An important milestone is being
set with the revision of the Swiss CO2 Act, which aims to halve GHG
emissions by 2030 compared to 1990 levels.
For the transport sector, carbon regulations for new vehicles
will be tightened towards EU levels. Emissions from road transport
fuels must be “ compensated ” which may lead to an increase of die-
sel and gasoline charges of up to CHF 0.12 per litre by 2025. For pub-
lic transport systems, the mineral oil tax exemptions will be reduced
to promote e-busses.
In the building sector, the CO2 tax on combustibles for heating
can be increased to CHF 210/t of CO2. For old buildings, an annual
CO2 limit per square metre of living space will apply when heating
systems are replaced.
A levy of CHF 30 to 120 will be imposed on plane tickets. The
revenues generated will be refunded to the population via the exist-
ing “ carbon dividend ”, and used to create a new climate fund. This
new fund will provide financial assistance for research and innova-
tion, particularly in the aviation sector, but also reduce liquidity
bottlenecks by securing and standardising energy contracting solu-
tions for smaller buildings and hedge the risks of investments in
the eco-friendly modernisation of buildings, for example.
Additionally, in the article outlining the purpose of the Act
(Art.1), the revised CO2 law stipulates that financial flows need to be
aligned with climate targets. No concrete measures have been
adopted regarding the investments or involvement of the Swiss
financial sector, but the proposed law does require the Swiss Finan-
cial Market Supervisory Authority (FINMA) and the Swiss National
Bank to review the micro- and macro-prudential financial risks of
climate change.
Outlook on Swiss climate policyIf put into force 11, the new CO2 law will set a more ambitious and
concrete framework for Switzerland to achieve its climate goals and
thus also send an important signal to financial market players. The
question of whether the environmental costs of CO2 emissions will
be sufficiently “ internalized ” by the new measures cannot be
answered conclusively in view of the high pace of global warming.
Also, it is not fully clear whether polluters will bear the full costs of
the externalities because a large part of the revenue from the CO2 tax
is redistributed as a “ carbon dividend ”. More important is the
dynamic effect of the increase in the price of CO2, which leads to :
SWISS SUSTAINABLE FINANCE 93Swiss Environmental Legislation
— a change in relative prices of carbon intensive products and
services compared to those with low carbon intensity, which
will only become apparent in the long term ;
— an improvement of market opportunities for existing low-car-
bon substitutes, for example e-mobility, heat pumps or effi-
ciency measures in the regulated sectors ;
— innovation processes and learning curves for new low-carbon
technologies that can be financed through revenues from the
carbon tax by accelerating research, development and market
introduction followed by cost reductions.
Despite these improvements introduced with the new Swiss CO2
law, final outcomes will depend on the willingness and capability
of responsible authorities and agencies to enforce the legislation.
Indeed, a number of loopholes persist. Under the new law all pri-
vate companies can obtain exemptions from the carbon levy by
making “ voluntary agreements ” on emission reductions. These
privileges may be abused if stringent enforcement is missing. Emis-
sion reductions should strictly be in line with the Swiss “ net zero ”
goal and a close monitoring of emission reductions for tax exemp-
tions will be key.
In the future, continuous political efforts are necessary to
remove such loopholes step by step and further raise the bar, nota-
bly in the following areas :
— Agricultural lobbies demonstrate strong opposition to cli-
mate and environmental policy efforts in many areas. Where
“ net zero ” cannot be achieved by emission reductions, com-
pensation measures should be created, tested, charged and
applied within Swiss borders to accelerate technological inno-
vation. This may create new products and markets for farm-
ers and for agriculture, forests and land management in
general. Carbon compensations can be created through
bio-energy with carbon capture and storage (BECCs), or
through the integration of timber in buildings as carbon
sinks – thereby reducing policy resistance against climate
protection efforts.
— So far, CO2 levies are charged based on emissions from fossil
energy consumed only within Swiss borders. They do not take
account for the ecological footprint of emissions from produc-
tion, transport, and storage outside of Switzerland. Swiss CO2
levies hence should cover carbon emissions of fossil fuel deliv-
ery chains that include emissions beyond Swiss borders. Dec-
larations of origin therefore should be introduced and also
include other greenhouse gasses such as methane.
— To reduce non bio-degradable waste and create an incentive for
recycling and biomass-based substitutes, fossil ingredients of
chemicals and products should be taxed equally.
— With the rising availability of electric vehicles, the traffic sec-
tor should carry equal CO2 levies as is the case for heating sys-
tems of buildings. A harmonization of CO2 levies and carbon
prices over all sectors would reduce policy loopholes and
increase regulatory efficiency.
Although the new CO2 law can be considered an important first step,
it is, in light of accelerated global warming, far from sufficient for
reaching the Swiss 2050 net zero emissions goal. More ambitious
action has to follow soon.
1 Swiss Federal Council/FOEN (2018). Environment Switzerland 2018, Report of the Federal Council, p. 9. Available at : https://www.bafu.admin.ch/bafu/en/home/documentation/reports/environmental-report-2018.html
2 FOEN (April 2020). National Inventory Report (NIR). Including reporting elements
under the Kyoto Protocol. Available at : https://www.bafu.admin.ch/dam/bafu/en/dokumente/klima/klima-climatereporting/National_Inventory_Report_CHE.pdf.download.pdf/National_Inventory_Report_CHE_2020.pdf
3 Ibid., p. 88. 4 “ Carbon dividend ” is a term used to describe the revenue from the CO2 levy
that is redistributed to all residents or households. In Switzerland, each person receives the same amount, regardless of his or her consumption. The distribu-tion of the revenues is carried out by health insurance companies and the amount is settled against the health insurance premium. The system incurs low enforcement costs. In 2021, the redistributed CO2 levy (“ carbon dividend ”) combined with redistributed tax on VOC is CHF 87.– per year and per person. For more information see : https://www.bafu.admin.ch/bafu/en/home/topics/climate/info-specialists/climate-policy/co2-levy/redistribution-of-the-co2-levy.html
5 Examples are the popular votes on the following referenda : New rail-rail link
through the Alps (1992), Protection of Alps (1994), introduction of a perfor-mance-based heavy goods vehicle levy (1998), financing of major railway pro-jects (1998), further expansion of railway infrastructure (2014)
6 Passivated Emitter and Rear Contact 7 Swiss Federal Office of Energy : Overall energy statistics 2018 and Electricity
statistics 2018 8 FOEN (2017). Evaluation of incentive effect of emissions trading scheme. Available
at : https://www.efk.admin.ch/en/publications/security-and-environment/transport-and-environment/2737-evaluation-of-incentive-effect-of-emis-sions-trading-scheme-federal-office-for-the-environment.html
9 FOEN (n.d.). Circular economy. Available at : https://www.bafu.admin.ch/bafu/
en/home/topics/economy-consumption/info-specialists/circular-economy.html
10 Swiss Federal Council (2015). Bundesrat verabschiedet Botschaft über ein Klima-
und Energielenkungssystem. Available at : https://www.admin.ch/gov/de/start/dokumentation/medienmitteilungen.msg-id-59257.html
11 The Act will likely be subject to a national referendum.
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 94
18 CONCLUSION Identifying and Tackling Barriers for Low-Carbon Financing Instruments
The chapters and case studies in this report demonstrate that there
are many ways in which the financial sector can allocate capital to
low-carbon solutions and thereby facilitate the transition to a
low-carbon economy. Leveraging this broad set of financial instru-
ments, which cover different asset classes and perform different
functions across the investment chain, is key to supporting the shift
from carbon-intensive to low-carbon business models.
However, in order for proven financial instruments as well as
innovative financing forms to unfold their potential and have a sig-
nificant impact, certain challenges must be addressed, and barriers
removed. In particular, concerns have been expressed about the
scalability of solutions at the brisk pace required, but also about the
access and availability of suitable low-carbon investment opportu-
nities, as well as regulatory uncertainty. 1 In the following sections,
we examine in detail what is hampering the uptake of the different
instruments and provide an outlook on how financial service pro-
viders, policymakers and economic actors from other sectors can
address improvements to the framework for low-carbon finance.
Investments in liquid markets (listed equity)Public markets have steadily gained importance for targeted
low-carbon investment strategies, partly due to the growing size of
the renewable energy sector, but also due to the necessity for all sec-
tors to transition. 2 This has allowed considerable expansion of the
offering of low-carbon financial products in public markets. Today,
there are a number of proven methods through which investors can
address climate change in their listed public equity investments, as
shown by the examples of thematic investments, or low-carbon indices and climate engagement for non-thematic investments. Also, by participating in IPOs of sustainable companies, equity
investors provide the necessary expansion capital for cleantech
solutions. Nevertheless, in order to improve the effectiveness of
such methods and further scale them, the following barriers need to
be overcome:
— For thematic listed equity, the main barriers lie on the level of
investor perception. The historical experience many clean
energy investors made in the early 2000s, with significant
losses due to boom and bust cycles, led to doubts whether such
investments could achieve reasonable risk-adjusted returns.
Since then, however, renewable energy has become a compet-
itive and cheap solution for many segments of the economy: it
often no longer relies on government subsidies and offers
competitive risk-adjusted returns. 3 Communicating these
advantages more proactively would help to address the con-
cerns of still sceptical investors.
— Additionally, low-carbon thematic listed equity investments
may be a challenge for some institutional investors, since they
do not fit into their traditionally regional-focused asset alloca-
tion strategy. One way to address this issue is for institutional
investors to create a special attribution for satellite invest-
ments within their investment strategy.
— For investments in non-thematic listed equity, data availabil-
ity is one of the most hotly debated issues. Company level car-
bon data (scope 1, 2 and in particular scope 3 4) and corporate
reporting on other key sustainability indicators are often
SWISS SUSTAINABLE FINANCE 95Conclusion
insufficient or incomplete. To improve data availability, public
authorities or financial market infrastructure players like
stock exchanges could require better reporting practices. The
Swiss stock exchange SIX could expand the scope and binding
nature of its opt-in clause on sustainability reporting.5 As a
basis for all of this, an open-source registry as suggested for
the EU would be very beneficial for corporate data availability.
In addition, the Swiss financial market regulator FINMA could
incentivise financial institutions to develop specific KPIs and
adequate measurement processes to assess carbon risks.
— Even with improvements in data availability, the lack of stand-
ardisation remains a key challenge for many investors. This
problem is illustrated in the case of low-carbon indices. Such
indices often have different underlying methodologies, which
has created considerable disparity in the industry. The EU Reg-
ulation on low-carbon benchmarks is expected to alleviate this
to a certain extent. It is therefore important for Switzerland to
join international initiatives that promote alignment of such
indicators and methodologies.
— Finally, with regards to climate engagement, a lack of resources
can sometimes be a barrier, especially for smaller asset manag-
ers. However, today there are many ways to team up with other
investors and mobilise common resources, be it in the form of
collaborative engagement initiatives such as Climate Action
100 + or by using the offering of an engagement service provider.
Bond marketGreen bonds are a well-established instrument internationally to
attract funds for low-carbon projects. They are mainly used to
finance or refinance clean energy and energy efficiency projects.
However, the market is deepening and has also supported the emer-
gence of a number of dedicated green bond funds.6 This has brought
certain challenges, listed below:
— The biggest impediment to further developing green bond
markets is not the willingness of investors, but the availability
of respective securities. Issuers can find the verification pro-
cess complicated and higher costs may hinder them from issu-
ing green bonds, especially in an environment of capital sur-
plus. Moreover, in Switzerland there are few service providers
that can support an issuer during the structuring and certifica-
tion process, due to the relatively small market.
To help develop the market in Switzerland, public entities
could lead the way and issue green bonds for projects that
deserve such a label.7 For more structural support, stock
exchanges could provide favourable listing conditions and the
government could incentivise the issuance of green bonds by
covering some of the extra costs in the verification process.
Finally, industry associations can inform the market about the
advantages of issuing green bonds through best-practice dia-
logue and case studies.
— Despite the popularity of green bonds, a broader set of capital
market instruments, such as transition bonds or sustainability-
linked bonds, will be required to support the transition away
from carbon-intensive business models. It is therefore impor-
tant not to focus solely on strictly green bonds.
Real estateReal estate is a popular asset class for many Swiss investors. Given
that the building stock in Switzerland accounts for around a quarter
of greenhouse gas emissions in the country 8, promoting low-car-
bon real estate investments is an effective way to support the tran-
sition. In addition, given that real estate is not associated with
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 96
cross-border mobility or trade, emissions are directly manageable
for Swiss investors.9 To do so, many instruments with a proven
track-record such as direct and indirect sustainable real estate investments, labels, eco mortgages or the more recent example of
refurbishment mortgages exist. Nevertheless, challenges can arise
from differences in cantonal regulation for the building sector, prop-
erty manager and tenant behaviour, or also a potential long-term
change of macroeconomic factors (e.g. energy prices) and resulting
market preferences:
— For direct real estate investments, the lack of comparable data
on the energy efficiency and consumption of individual build-
ings remains a problem. As of today, there is no nationally-im-
plemented mandatory Swiss energy performance certificate
(EPC) 10 This can make it difficult for institutional investors to
anticipate and compare different properties. A mandatory EPC
in all cantons would provide more transparency on energy effi-
ciency and fossil fuel exposure, which would make it easier for
investors to assess the building value holistically at the point of
purchase and/or when refurbishing. A first step towards more
transparency already underway in the real estate sector is the
PACTA climate alignment test initiated by the Swiss govern-
ment, which as of 2020 is also applicable to real estate invest-
ments.
— In general, traditional real estate valuation models still focus
too heavily on short-term cash flows. On the side of banks for
example, sustainability factors should be integrated into
standard mortgage credit analysis and the results disclosed
to clients, thus providing long-term oriented price signals and
models. In the current market environment with very low
interest rates, it will be difficult to further scale up eco mort-gages.11 Instead, the assessment of all buildings should be
more specific about environmental criteria.
— Given that buildings are among the longest-lived assets in the
real economy, retrofitting the existing building stock is
urgently necessary in order to meet the Paris Agreement targets.
Effective financing solutions and refurbishment mortgages
can support building upgrades, but the lack of consulting and
know-how on well-planned refurbishment financing can
make this difficult. The patchwork of cantonal rules further
complicates the matter.
— In addition, energy-efficiency investments may be challenging,
as the benefits from the savings in energy bills accrue to ten-
ants, who may not own the building, and it can be difficult for
the investor/owner to pass on the costs to the tenant in the
form of higher rents in the current environment of real estate
surplus in many areas of Switzerland.
Direct investments into non-listed companies /venture capitalNon-listed investments in low-carbon companies or projects with
an explicit or integrated approach to a low-carbon economy are
well-positioned to support the transition. They also offer the possi-
bility to gain exposure to regions, markets and industries of the
future that drive the low-carbon transition process.12 Venture capi-tal and early-stage clean technology investments in particular can
provide the necessary funding for innovative and disruptive busi-
ness models. Many of the barriers for this segment are not limited
to low-carbon investments, but are of a general nature :
— Switzerland does not have a strong culture in the field of pri-
vate market investments. Structural challenges such as limited
exit options and ticket sizes that are too small in volume 13 fur-
ther hamper the attractiveness of such investments. Evergreen
structures or yield-cos could address some of the issues. Fur-
thermore, with digital finance gaining ground, the opportuni-
ties to tokenise assets and thereby reduce minimum ticket
sizes could facilitate the attractiveness of private market
investments for private clients.
SWISS SUSTAINABLE FINANCE 97Conclusion
Beyond low-carbon investments within commonly deployed asset
classes and traditional lending, innovative instruments can help
finance the transition. These are not limited to traditional financial
players, but address new forms and structures relevant to other
actors, too, as outlined in the following sections.
Blended financeBlended finance has proven to be a suitable structure to improve
the appeal of low-carbon investments with unattractive risk-return
profiles or risks that go beyond the risk appetite of private investors.
Switzerland already possesses considerable know-how in this field
and should now focus on promoting blended finance solutions for
energy efficiency and renewable energy in emerging markets, where
risks often constrain traditional investments. Room for improve-
ment and scale mainly lies on the following two levels:
— For blended finance investments to be successful, a targeted
focus would need to be put on fostering strong regional and
local networks necessary to develop high-quality project pipe-
lines.
— In addition, broadening know-how on the opportunities and
building expertise in blended finance projects could further
increase interest among Swiss investors. This can be fostered
by a Swiss blended finance / impact investment knowledge
platform.14
InsuranceBesides traditional insurance solutions for large renewable energy
infrastructure, innovative models such as energy savings insur-ances (ESI) can drive investment into energy efficiency for smaller
customers (SMEs) that would otherwise perceive such undertakings
as too expensive or too risky. The ESI model has so far been applied
in Latin America as well as Spain, Portugal and Italy. For the model to
grow, the following points need to be addressed:
— The implementation of the ESI model still requires initial fund-
ing for the development of the programme. The Swiss govern-
ment, or private actors in Switzerland, could support such
models or provide initial design funding for replicating it in
other countries.
— For the ESI model to work, adequate support throughout the
implementation, e.g. capacity-building for key market stake-
holders, communication and marketing activities, as well as
support to build initial pipelines of EE projects, is crucial.
Capacity-building therefore should not be neglected, in order
to make the model self-sustaining in the near future.
Energy performance contracting A similar financing model to the one above is energy performance contracting (EPC). Through this contractual structure, energy service companies (ESCOs) can de-risk and aggregate energy performance
projects. Nevertheless, the EPC market in Switzerland is relatively
new compared to neighbouring countries :
— One of the biggest challenges in Switzerland is the lack of
awareness about this business model and the benefits it deliv-
ers to stakeholders. As such, it is imperative that greater efforts
are made to raise awareness and communicate the contribu-
tion EPC can make towards achieving Swiss policy targets. The
standardisation of such contracts could make the instrument
easier to adopt.15
— For ESCO companies, debt ratio restrictions may limit them in
undertaking more projects. The creation of structures that
bring the EPC receivable to secondary buyers, i.e. capital mar-
kets, can help address this issue.
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 98
ment and due diligence teams. To date, such an institution does not
exist in Switzerland.18 Before advocating the creation of such Swiss
green SIBs, however, its added-value compared to existing banks
that finance green projects would need to be demonstrated. In any
case, the creation of a Swiss green SIB would entail an in-depth
political process and require a decision from the Swiss legislative.
Conclusion A wide array of options exist for different types of investors to play
their part, some for the usual mainstream asset classes, others for
more innovative structures that go beyond traditional finance.
Financial players need to deploy these instruments to replicate
existing solutions on a scale that encourages a shift away from a
carbon-intensive economy towards a low-carbon, climate-resilient
economy and society.
What is hampering the wide-scale implementation of low-car-
bon financing instruments ? Naturally, different financial players
have different roles and different risk capacities and culture. How-
ever, common barriers observed over multiple instruments are
the lack of standards and data for measuring and monitoring key
climate indicators, lack of awareness of these instruments and
insufficient expertise.
In addition, despite the abundance of many low-carbon busi-
ness opportunities, the transition away from carbon-intensive busi-
ness models may also create financial risk. Some assets in the real
economy are long-lived and curtailing their lifetime early may lead
to financial losses or be financially unattractive, as the section on
real estate investments shows. These problems are not something
financial players can solve on their own, but require well-designed
policies for all sectors and a willingness of the government to inter-
nalise environmental costs adequately (see Figure 36).
A more substantial challenge, which financial players willing
to support a low-carbon society regularly face, is that the real econ-
omy has not yet developed competitive low-carbon solutions in
some sectors. The universe of low-carbon investment opportunities
can therefore be limited. Industries such as the heavy-duty trans-
Community financeFor small-scale retail investors, community finance structures such
as renewable energy cooperatives can allow them to actively
invest in renewable energy. In Switzerland, cooperatives are an
established structure, but the market for consumer co-ownership of
renewable energy is small, with only 1.9 % of the Swiss population
having used this tool, compared to 7 % in Austria, for example. Dif-
ficulties for the model persist mainly on the level of the overarching
energy framework conditions:
— The absence of electricity market liberalisation in the small-
consumer segment may hinder consumer co-ownership.
Related constraints are the fact that the costs attributed to the
local user community by the incumbent utility is high
(includes international grid costs), and the current feed-in
tariffs are low.
— Lack of economies of scale could be addressed through stand-
ardised contracts, with the ultimate aim of getting more play-
ers to form such consumer co-ownership cooperatives.
Carbon credit marketsThe Swiss carbon credit market currently does not generate
enough incentives for companies to reduce their emissions to the
necessary levels.16 To make the system more efficient, framework
conditions will have to be adapted in several ways. Most impor-
tantly, the Energy Agency of the Swiss Private Sector 17 needs to break
down its sector targets to adequately reflect the Federal Council’s
net zero 2050 goal. Additional instruments that could create incen-
tives for negative emissions should be considered (e.g. a CO2 stor-age credit system).
Green state investment bankAn additional climate finance instrument covered in this report is
green state investment banks (SIB), a form of public financial insti-
tution that facilitates private investment in low-carbon solutions.
Green SIBs can not only de-risk projects and provide capital, but
also contribute crucial knowledge through specialised risk assess-
Figure 36 :KEY RECOMMENDATIONS FOR SCALING LOW-CARBON FINANCE SOLUTIONS
Address the significant data gaps, increase availability of decision-useful data (market players and government)
Create standards and aligned definitions for low-carbon investments (market players and government)
Build and disseminate know-how and expertise in low-carbon finance (market players and government)
Encourage a holistic approach that considers the integrated investment chain (market players)
Ensure accurate pricing signals within the current system (government)
Create incentives/de-risk (government)
SWISS SUSTAINABLE FINANCE 99Conclusion
port sector often do not yet offer viable investment opportunities
for low-carbon investors. Ultimately, the development of sustaina-
ble business models in key industries, in Switzerland and abroad, is
crucial. Public policies are needed to incentivise this development,
as well as corresponding finance and investment through carbon
pricing, R&D and other tools. However, this is not an easy task.
Designing, implementing and enforcing effective environmental
policies is a highly complex matter, and adverse incentives persist,
as the last chapter on Swiss environmental policy developments
has shown.
To conclude, this report shows that the financial sector can
play a crucial role and mobilise the funding needed for change.
However, only an intense dialogue and close cooperation between
all stakeholders, namely financial players, regulators and real econ-
omy representatives, can build the effective framework conditions
for a fast transition to a low-carbon economy.
1 PRI (6 June 2018). How to invest in the low-carbon economy. Available at : https://www.unpri.org/climate-change/how-to-invest-in-the-low-carbon-economy/3210.article
2 As clean energy projects have increasingly come to resemble traditional infrastructure investments rather than risky alternatives, a larger pool of investment capital has emerged. Source : https://data.bloomberglp.com/com-pany/sites/55/2019/09/Financing-the-Low-Carbon-Future_CFLI-Full-Report_September-2019.pdf p. 40.
3 Imperial College Business School and International Energy Agency (June 2020). Energy Investing : Exploring Risk and Return in the Capital Markets. Available at : https://imperialcollegelondon.app.box.com/s/f1r832z4apqypw-0fakk1k4ya5w30961g
4 In particular, the absence of scope 3 data is still a big challenge.
5 More on the SIX sustainability opt-in clause : https://www.six-group.com/exchanges/shares/companies/sustainability_reporting_en.html
6 PRI (13.06.2018). How to invest in the low-carbon economy. Green and climate- aligned bonds. Available at : https://www.unpri.org/climate-change/low-carbon-investing-and-green-and-climate-aligned-bonds/3284.article
7 In Switzerland, multiple cantonal entities have already issued green bonds, e.g. the Canton of Geneva in 2017 or the Canton of Basel-Stadt in 2018. In 2020, the telecom operator Swisscom published a Green Bond Framework, setting the way forward as a large government-owned company.
8 The Swiss building stock accounts for about 50 % of primary energy consumption and for 24 % of greenhouse gas emissions. See : www.energiestiftung.ch/ener-gieeffizienz-gebaeude.html
9 WWF and Credit Suisse (2012). Decarbonizing Swiss Real Estate. The Credit Suisse Case Study. p. 7. Available at : https://www.wwf.ch/sites/default/files/doc-2017-11/2012-08-study-decarbonizing-swiss-real-estate-the-case-study-of-credit-su-isse.pdf
10 The GEAK (Gebäudeenergieausweis der Kantone) is not mandatory on a national level. For more information see : https://www.geak.ch/de/der-geak/anwendungsbereiche/
11 A consortium of banks, industry associations and other stakeholders in Europe aim to promote a standardised “ energy efficient mortgage ” under the Energy Efficient Mortgage Initiative : https://eemap.energyefficientmortgages.eu/
12 PRI (13 June 2018). How to invest in the low-carbon economy. Unlisted strategies and assets. Available at : https://www.unpri.org/climate-change/low-carbon-in-vesting-and-unlisted-strategies-and-assets/3285.article
13 Asset managers and asset owners generally prefer to allocate larger sums per transaction than the typical clean energy investment allows, a survey suggests that a minimum asset finance deal of $100 million is likely required for direct investment. Source : Climate Policy Initiative (March 2013). The Challenge of Institutional Investment in Renewable Energy.
14 SECO is currently preparing a feasibility study for such a platform.
15 See example in France : https://www.ecologique-solidaire.gouv.fr/sites/default/files/Pr%C3%A9sentation%20g%C3%A9n%C3%A9rale%20-%20Clausiers%20CPE.pdf
16 See p. 3 of EFD report (2017) : “ However, actual trading activity in the ETS has been minimal in the first three years of the commitment period from 2013 – 2020. ” Source : www.efk.admin.ch/images/stories/efk_dokumente/pub-likationen/evaluationen/Evaluationen%20(51)/16393BE.pdf
17 See : https://enaw.ch/en/?nocache=1
18 Switzerland’s Technology Fund is considered by some as a green SIB-like entity, but does not have the institutional standing. See : www.technologyfund.ch/
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 100
LIST OF ABBREVIATIONS
Capex Capital expenditure
CBI Climate Bonds Initiative
CHF Swiss franc
CO2 Carbon dioxide
COP Conference of the Parties
CVaR Climate Value at Risk
DCF Discounted cash flow
DER Distributed energy resources
DFI Development finance institution
EE Energy efficiency
EIB European Investment Bank
EnA Swiss Energy Act
EPC Energy performance certificate
EPC Energy performance contracting
ESCO Energy services company
ESG Environmental, social and governance
ETF Exchange traded fund
ETS Emission Trading Scheme
EU European Union
EUR Euro
EV Electric vehicle
FINMA Swiss Financial Market Supervisory Authority
FOEN Federal Office for the Environment
G20 Group of Twenty (Argentina, Australia,
Brazil, Canada, China, France, Germany,
India, Indonesia, Italy, Japan, Mexico,
Russia, Saudi Arabia, South Africa,
South Korea, Turkey, UK, US, EU)
GBS Green Bond Standard
GDP Gross Domestic Product
GEAK Gebäudeenergieausweis der Kantone
GHG Greenhouse gas
GRESB Global Real Estate Sustainability Benchmark
ICMA International Capital Markets Association
IEA International Energy Agency
IFC International Finance Cooperation
IPCC Intergovernmental Panel on Climate Change
IPO Initial public offering
KfW Kreditanstalt für Wiederaufbau
kWh Kilowatt hour
LCA Life Cycle Assessment
LEED Leadership in Energy and Environmental
Design
MDB Multilateral development bank
NPV Net present value
OECD Organisation for Economic Co-operation
and Development
PPA Power purchase agreement
PPP Polluter pays principle
PPP Public private partnerships
PRI Principles for Responsible Investment
PV Photovoltaic
R&D Research and development
RE Renewable energy
SDG Sustainable Development Goal
SI Sustainable investment
SIB State Investment Bank
SME Small and medium-sized entreprise
SNBS Standard nachhaltiges Bauen Schweiz
SSF Swiss Sustainable Finance
TCFD Task Force on Climate-Related Financial
Disclosures
TEG Technical Expert Group
UHNWI Ultra high net worth individuals
UN United Nations
UNFCCC United Nations Framework Convention on
Climate Change
USD US Dollar
VC Venture capital
VPP Virtual power plant
SWISS SUSTAINABLE FINANCE 101
AUTHORS
Jessica CarlierCandriamCASE STUDY 2.1
Vincent CompiègneCandriamCASE STUDY 2.1
Phanos HadjikyriakouCarbon Delta AG (an MSCI company)CHAPTER 3
Rolf HelblingCarnot CapitalCASE STUDY 2.2
Isa CakirCentre for Corporate Responsibility and Sustainability (CCRS) at the University of ZurichCASE STUDY 13.1
Martyna ManiakCentre for Corporate Responsibility and Sustainability (CCRS) at the University of ZurichCASE STUDY 13.1
Edwin Zea EscamillaCentre for Corporate Responsibility and Sustainability (CCRS) at the University of ZurichCASE STUDY 13.1
Michael KlippelChair of Timber Structures ETH Zurich & Swiss Timber SolutionsCASE STUDY 13.1
Dominic HofstetterEIT Climate-KICCHAPTER 16
Qendresa RugovaEnfinit Sàrl / Sustainable Finance Geneva (SFG)CASE STUDY 9.1 & CHAPTER 11
Florian EgliETH ZurichCHAPTERS 15 & 16
Matthias NarrEthos FoundationCHAPTER 4
Rudolf RechsteinerEthos FoundationCHAPTER 17
Daniel ArnoldFontavis AGCASE STUDY 8.1
Christoph GislerFontavis AGCASE STUDY 8.1
Martina TriulziFontavis AGCASE STUDY 8.1
Alexandros GratsiasJ. Safra SarasinCASE STUDY 6.1
Urs DiethelmFormerly with Julius Baer CHAPTER 5
Ulla EnneNest SammelstiftungCHAPTER 6
Diego LiechtiNest SammelstiftungCHAPTER 6
Raphael PepeNest SammelstiftungCHAPTER 6
Carmela MondinoPartners GroupCHAPTER 8
Stephen FreedmannPictet Asset ManagementCHAPTER 2
Christian RoessingPictet Asset ManagementCHAPTER 2
Alessia FalsaronePineBridge InvestmentsCHAPTER 13
Alain MeyerPineBridge InvestmentsCHAPTER 13
Robert Vanden AssemPineBridge InvestmentsCHAPTER 13
Philipp AckermannRaiffeisen SwitzerlandCASE STUDY 5.1
Christian HoferRaiffeisen SwitzerlandCASE STUDY 5.1
Daniel JakobiRaiffeisen SwitzerlandCHAPTER 7
Richard MespleFormerly with SI-RENCASE STUDY 12.1
Daniel MagallónStiftung BASE (Basel Agency for Sustainable Energies)CHAPTER 10
Livia Miethke MoraisStiftung BASE (Basel Agency for Sustainable Energies)CHAPTER 10
Benjamin SchmidSwiss Federal Institute for Forest, Snow and Landscape Research (WSL)CHAPTER 12
Dominik PfosterSwiss Life Asset ManagersCASE STUDY 8.1
Lukas SchnellerSwiss State Secretariat for Economic Affairs (SECO)CHAPTER 14
Jean LavilleSwiss Sustainable FinanceCASE STUDY 12.1
Adrian BührerÜbermorgen VenturesCHAPTER 9
Alexander LangguthÜbermorgen VenturesCHAPTER 9
Anna Ebers BroughelUniversity of St. Gallen (Institute for Economy and the Environment)CHAPTER 12
Alexander StauchUniversity of St. Gallen (Institute for Economy and the Environment)CHAPTER 12
Pascal VuichardUniversity of St. Gallen (Institute for Economy and the Environment)CHAPTER 12
Tomasz OrpiszewskiZHAWCHAPTER 3
Jan-Alexander PosthZHAWCHAPTER 3
Authors
SWISS SUSTAINABLE FINANCE Financing the Low-Carbon Economy 102
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PUBLISHER: SWISS SUSTAINABLE FINANCEThe mission of Swiss Sustainable Finance (SSF) is to strengthen Switzerland’s position as a leading voice and actor in sustainable finance, thereby contributing to a sustainable and prosperous economy. The association, founded in 2014, has representative offices in Zurich, Geneva and Lugano. Currently, SSF unites over 160 members and network partners from financial service providers, investors, universities and business schools, public-sector entities and other interested organisations. Through research, capacity-building and the development of practical tools and supportive frameworks, SSF fosters the integration of sustainability factors into all financial services. An overview of SSF’s current members and partners can be found on its website : www.sustainablefinance.ch
ACKNOWLEDGEMENTSSwiss Sustainable Finance would like to thank first and foremost the 44 authors of the different chapters, who offered expert knowledge from their respective fields and worked constructively with the editorial team. Without their valuable contributions, this publication would not have been possible. We also warmly thank the members of the Steering Committee, which guided the preparation of this publication and provided valuable input concerning the overarching focus, structure and content during the conceptualisation and review phase. We furthermore thank the proofreaders and editors, who quickly adopted the specific terminology of low-carbon finance and helped to create a consistent and informative final text.
STEERING COMMITTEE:Manuel Berger, PwCErol Bilecen, Raiffeisen SwitzerlandGuillaume Bonnel, Credit Suisse AGRudolf Rechsteiner, Ethos FoundationChristian Roessing, Pictet Asset ManagementNorbert Rücker, Bank Julius Baer & Co. Ltd.Qendresa Rugova, Sustainable Finance GenevaGianfranco Saladino, BlueOrchard Finance SAOliver Schmid-Schönbein, E2 Management Consulting AGLukas von Orelli, Velux Stiftung
EDITORIAL TEAM:Anja Bodenmann, Project Manager, Swiss Sustainable FinanceSabine Döbeli, CEO, Swiss Sustainable FinanceKelly Hess, Director Projects, Swiss Sustainable FinanceJean Laville, Deputy CEO, Swiss Sustainable Finance
Zurich, November 2020
Proofreading : Graeme High Language Consultants Ltd.Translator : Dominique Jonkers (Jonkers & Partners, expert financial translators)Design : frei – büro für gestaltung, Zürich | freigestaltung.chPhoto Director : Ute Noll | utenoll.com Cover : RDR architectes © Fernando Guerra | FG + SG | architectural photographyPhoto captions : Artwork name : “ Le Semainier et son double ” (Grätzel coloured glass energy producing panels). Artists : Catherine Bolle & Daniel Schlaepfer Grätzel cells : Solaronix SA Grätzel project : Professor Michael Grätzel Artwork name : “ Le cordes lumineuses ” (the “ light strings ” inside the building). Artist : Catherine Bolle
DisclaimerThis document was prepared by Swiss Sustainable Finance in collaboration with various contributing authors. The information contained in this document (hereinafter “ information ”) is based on sources that are considered as reliable. However, Swiss Sustainable Finance does not assume any liability for the correctness nor completeness of the individual chapters. The information represents an assessment of the market at a specific time and is not a guarantee of future market development. The information within the report can be subject to change at any time without obligation to notify the recipient thereof. Unless stated otherwise, all figures are unaudited and not guaranteed. Views may be based on third-party data that has not been independently verified. The document is intended for informational purposes only. All actions taken based on the information are at the recipient’s own liability and risk. The information does not constitute investment, financial, legal, tax, or other advice; nor an offer to purchase or sell any financial product ; nor a recommendation for any investment product or strategy. The information does not release the recipient from exercising his or her own judgement. Any opinions, projections, or forward-looking statements expressed herein are solely those of the contributing authors.
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